Taxpayer success in capital allowances tribunal case

19 October 2018

Commencing in 2006, SSE Generation Limited (SSE) built a £300m hydroelectric power generation plant at Glendoe, near Loch Ness in Scotland, which can produce 100MW of power to meet peak demand. 

The claim

SSE claimed that around 87 per cent (£260m) of its £300m costs associated with the construction (and later rectification) of its hydroelectric power generation scheme qualified for capital allowances. HMRC accepted that some £34m was eligible, but disputed around £227m of the expenditure in a recent tax tribunal case.

The scheme incorporated large items of plant and machinery for the generation of power which were not in dispute. The key issue was whether the significant building and structural elements associated with the provision and installation of the qualifying plant and machinery were eligible for allowances.

The decision

The First-tier Tax Tribunal allowed SSE’s appeal in part, with the following summary outcomes on the relevant elements of expenditure incurred.

  1. Water intakes – allowed in full.
  2. Conduits for channelling of water – allowed in part.
  3. Headrace - specialised conduit to deliver water at correct pressure to generating equipment – allowed in full.
  4. Power cavern housing turbine and generation equipment – mostly disallowed.
  5. Transformer cavern housing transformer – mostly disallowed.
  6. Tailrace – specialised conduit to remove pressurised water from generation equipment – allowed in full. 
  7. Access tunnels – mostly disallowed.


Whilst a project of this type and size is unusual, the tribunal decision helps reinforce the application of some fundamental and important interpretations of the capital allowances legislation that have wider relevance - not just for other hydroelectric schemes, but for many other infrastructure projects. It remains to be seen whether either party will appeal the decision.

What action should you take?

It is clear from the SSE Generation case that the law relating to capital allowances is complex and challenging to interpret and apply. It is also clear that HMRC’s opinion on what expenditure qualifies for tax relief is not always correct.

If your business has incurred significant capital expenditure involving building or structural works, then it is worthwhile seeking advice from a capital allowances specialist to ensure that you have claimed all the tax relief you are entitled to.

RSM’s specialist capital allowances team includes experienced surveyors and tax specialists that have the necessary skills and knowledge to help ensure you do not miss out on valuable tax relief.

For more information please get in touch with Peter Graham.