SSE Generation: When Is A Tunnel A Tunnel?

• Published date: 23 June 2023
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Tax, Financial Services, Trials & Appeals & Compensation, Tax Authorities
• Law Firm: Norton Rose Fulbright
• Author: Will Scott

Originally published in Tax Journal

The Supreme Court has dismissed HMRC's appeal in respect of the approach to the statutory interpretation of the words 'tunnel' and 'aqueduct' in CAA 2001 ss 21-23. To determine the applicable ordinary meaning of a word, it is right to consider the relevant statutory context. Uncertainty remains, but do not expect legislative reform any time soon.

In HMRC v SSE Generation Ltd [2023] UKSC 17 (reported in Tax Journal, 22 May 2023), the Supreme Court dismissed HMRC's appeal in respect of the availability of capital allowances on expenditure incurred by SSE Generation Ltd (SSE) in connection with the construction of certain 'conduits' used for transporting water. The decision is the latest in a line of cases (Cheshire Cavity Storage 1 Ltd and another v HMRC [2021] UKUT 156 (TCC), Urenco Chemplants Ltd and another v HMRC [2022] UKUT 22 (TCC), and Gunfleet Sands Ltd and others v HMRC [2022] UKFTT 35 (TC)) looking at the tricky issue of the availability of capital allowances in respect of increasingly novel technologies used in the power generation industry.

The facts

SSE constructed and operates a hydroelectric plant in Glendoe, Scotland. The construction was complex, with a number of novel aspects that were implemented to maximise the amount of, and pressure at which, water is passed through the turbine in order to power the generator, as well as to minimise the environmental impact of the plant more generally. Details of precisely how the plant operates were set out in full in the judgement of the Firsttier Tribunal, but in short, it operates by collecting surface level water and directing it into an underground network of conduits to a reservoir, channelling water into a headrace and turbine to power the generating equipment which was located underground, and then releasing the water via a tailrace.

The plant's operation relies fundamentally on transporting water from one place to another, the majority of which takes place underground. By the time the case reached the Supreme Court, the issues to be determined were limited to whether any of SSE's expenditure was in respect of a 'tunnel' or an 'aqueduct' within the meaning of CAA 2001 s 22 List B. If expenditure was incurred in respect of a 'tunnel' or an 'aqueduct' then it would not qualify for capital allowances unless it was caught by CAA 2002 s 23 List C, which lists 33 items which are saved from disqualification.

Which is the appropriate 'ordinary meaning'?

The Supreme...