A recent Court of Appeal decision has delivered excellent news for businesses involved in major construction and infrastructure projects. The ruling confirms that pre-construction development costs such as environmental studies, design work, and surveys can qualify for capital allowances in many cases.
This decision could open the door to significant additional tax relief for commercial property owners, developers, and investors.
Background to the Case
The case in question, Orsted West of Duddon Sands (UK) Ltd and others v HMRC [2025], focused on whether costs incurred before construction began could be claimed as qualifying expenditure for capital allowances.
Historically, HMRC had taken a narrow view, arguing that only direct spending on the physical installation of plant and machinery could qualify.
However, the Court of Appeal rejected this strict approach. It ruled that expenditure that informs the design or installation of plant and machinery can also qualify as long as certain conditions are met.
The Three-Limb Test
The Court of Appeal developed a simple three-part test for assessing whether pre-construction development costs are eligible:
- Objective Connection: The expenditure must, objectively and with hindsight, have informed the design or installation of the plant or machinery.
- Actual Installation: The plant or machinery must have actually been constructed or acquired.
- No Special Taxpayer Characteristics: The costs must not arise from circumstances unique to the taxpayer, such as financing costs.
Applying this test, the Court found that Orsted’s environmental studies, geotechnical surveys, and design work were essential for the design and installation of their offshore wind farms and therefore qualified for capital allowances.
What This Means for Businesses
This decision is a significant win for taxpayers. It provides much-needed clarity on what types of preparatory work can attract capital allowances, especially for bespoke and complex projects like:
- Wind farms
- Major infrastructure developments
- Bespoke manufacturing facilities
- Custom-designed commercial buildings
Companies involved in large-scale developments should review their past and current projects to assess whether previously unclaimed pre-construction expenditure may now be eligible for relief.
Looking Ahead
While HMRC may still appeal the decision to the Supreme Court, for now, this is a very positive development. It also ties into the government’s wider plans to simplify and clarify capital allowances legislation in the future.
At CA Select, we help businesses maximise their claims and ensure no qualifying expenditure is left unclaimed. If you have incurred costs during the early stages of a development, now is the time to review your position.
Get in touch with our team today to find out if you could benefit from this important change.
