The UK Supreme Court’s recent decision in Ørsted West of Duddon Sands (UK) Ltd (now named Ørsted Schroders Greencoat WODS Holdco Limited) v HMRC has delivered clarity, but also yet another financial challenge, for energy and infrastructure developers and investors operating in the UK, adding further pressure at a time when the sector is already grappling with rising costs and tightening margins.

The judgment confirms a narrow interpretation of the capital allowances regime, specifically ruling out allowances for expenditure incurred on environmental surveys and studies during the early stages of offshore wind farm development.

It resolves long‑standing uncertainty and underscores the importance of careful legal, tax and project planning from the earliest stages of renewables and infrastructure development.

What happened in Ørsted West of Duddon Sands v HMRC?

The case concerned whether costs incurred on environmental surveys and technical studies undertaken during the planning and design of offshore wind farms could qualify as capital allowances under section 11(4) of the Capital Allowances Act 2001. If so, that could significantly reduce the developer’s tax liability in connection with the development of its offshore wind farms.

Capital expenditure will qualify under section 11(4) if it’s “capital expenditure on the provision of plant”.

HMRC accepted that offshore wind farms constitute “plant” for these purposes, but argued that expenditure on surveys and studies carried out prior to construction was not expenditure “on” the provision of that plant. The Supreme Court agreed with HMRC. It concluded that even where such studies were essential to securing consent or deciding the location and design of the wind farm, they lacked a sufficiently close connection to the provision of the generating assets themselves.

Overturning the Court of Appeal’s earlier decision, the Supreme Court restored a restrictive interpretation of the capital allowances regime. It confirmed that such preparatory and investigative costs, however significant, did not generally qualify.

Why this matters for renewables and infrastructure development

If you’re a developer, the financial implications are clear. Early‑stage development costs, such as environmental impact assessments, geotechnical surveys, marine studies and heritage reports, and the like, can’t generally be offset against taxable profits through capital allowances. This decision will affect both existing projects, and those currently progressing through to final investment decision stage and beyond. No further appeal from this decision is possible, and so you’ll need to ensure it is reflected in all of your project economics and viability assessments.

If you’re developing an energy and infrastructure project involving bespoke assets and substantial pre‑construction investigation work across energy, transport and utilities, you should take into account the updated capital allowances position when considering how development expenditure is structured, budgeted and allocated across your portfolio, in light of the Supreme Court’s decision.

While the Ørsted decision may narrow the scope of available tax relief, it also provides welcome certainty if you’re an investor or funder conducting due diligence on energy and infrastructure projects and modelling the financial position. You should carefully consider whether this decision has implications for any assets you currently seeking to acquire or finance, or any of your existing portfolio.

With the Supreme Court’s decision leaving open the potential for certain detailed technical designs or costs to qualify in different factual circumstances, specialist legal and tax advice is recommended on a case-by-case basis when projects are being scoped, acquired, funded and documented.

How we can help you

Our Infrastructure & Energy and Tax teams advise clients across the full lifecycle of wind and other renewables and infrastructure projects, from site acquisition and consenting, through design and planning, to investment, financing, M&A, construction and operation.

We can help you with strategic planning and consenting support; assessing and mitigating tax risk and strengthening investment rationale; ensuring appropriate risk allocation in development and funding contracts; and navigating legal change and regulatory developments to help you adapt and capitalise upon market opportunities.

Please contact Laura, Nicola or Charlotte for further information, training or advice.