SSE has welcomed a decision by the UK’s Supreme Court, which unanimously found in favour of the company in its long-running capital allowances case in relation to Glendoe Hydro Electric Station.
SSE had claimed capital allowances on expenditure incurred when constructing a hydro-electric power station at Glendoe, Fort Augustus in Scotland.
Such allowances may be deducted from income for the purpose of calculating a company's trading profits subject to corporation tax.
Commissioners for His Majesty's Revenue and Customs (HMRC) disputed certain allowances claimed by SSE for tax years 31 March 2006 to 31 March 2012 on the basis that in their view certain relevant assets did not give rise to allowable expenditure under the Capital Allowances Act 2001.
The dispute resulted in the matter being brought before the First-tier Tribunal, Upper Tribunal, and the Court of Appeal, before being appealed to the Supreme Court by HMRC.
The issue in the appeal before the Supreme Court was whether items constructed for the collection and transmission of water to, through and from the hydro-electric power station (the "disputed items") are a "tunnel" or an "aqueduct" within the meaning of those words as used in section 22 List B of Chapter 3, Part 2 of the Capital Allowances Act 2001.
If they were so deemed, then the expenditure on the disputed items does not qualify for capital allowances.
The Supreme Court unanimously dismissed the appeal, holding that the disputed items are neither a "tunnel" nor an "aqueduct" within the meaning of those words as used in section 22 List B of Chapter 3, Part 2 of the Act.
Conclusion of the case confirms that around £200m of expenditure incurred on Glendoe qualifies for capital allowances, which SSE will receive over a c.50-year period as tax relief against the overall taxable UK profits of the Group.
In a statement, SSE said: "We welcome today’s decision by the UK Supreme Court which has unanimously found in favour of SSE in its long-running capital allowances case in relation to Glendoe Hydro Electric Station.
"This ruling provides welcome clarity on the tax treatment of allowances and credits for essential low carbon assets.
"Such allowances and credits play an important contributory role in low carbon investments and will support the ongoing actions SSE is taking as the UK’s clean energy champion to deliver the homegrown energy infrastructure the country needs."
Angus Walker, a partner at the law firm BDB Pitmans specialising in infrastructure, said the judgment had far-reaching implications for other similar projects.
“The case boiled down to whether ‘tunnel’ and ‘aqueduct’ had general or specific meanings in the context of tax allowances," he said, adding HMRC’s argument that they were general was unsuccessful.
"This judgment is good news for investment in British renewable energy projects.
"If the UK is going to reach net zero and ensure the country has sufficient energy capacity, it’s vital that potential investors know that the tax regime will not penalise them unfairly.
Walker added: "The government might consider clarifying the Capital Allowances Act 2001 so that there does not need to be 14 years of wrangling over a project opened by the Queen in 2009.”