Pre-development surveys – another update!

We have previously mentioned a tax case where numerous pre-installation studies were carried out (costing £48m) to assess the best positioning for offshore wind turbines. The company had included this expenditure, along with expenditure on the wind turbines themselves, as part of their qualifying expenditure for capital allowances. The Court of Appeal had determined that the expenditure on the surveys qualified for capital allowances.  It decided that expenditure ‘… on the provision of plant or machinery’ (which is the wording in the legislation) encompasses the costs of design as well as installation. This extended to costs of studies that informed such installation or design.

Examples of the studies in this case included those relating to landscape, seascape and visual assessment; ornithology and collision risk; noise; and telecoms and radar interference studies.
This decision appeared to have clarified that pre-installation surveys should normally be treated as part of the cost of the plant that is to be installed. Under current legislation, ‘full expensing’ would apply, meaning that the cost would be immediately deductible for corporation tax purposes.

However, the Supreme Court has now overturned that decision! It decided that the relevant legislation does not define the exact boundary between what qualifies and what does not, but that costs incurred in obtaining the studies and surveys did not fall close to the boundary beyond which they should be regarded as on the provision of plant.

If your business incurs similar pre-development costs before installing plant and machinery, they will therefore not qualify for tax relief.

We can help clarify the position for you before you incur such expenditure. Not getting tax relief increases the effective cost of the project, so this decision may mean that some projects are no longer financially viable.