This was one of the questions that the Court of Appeal considered in SSE Generation Ltd v HMRC [2021] EWCA Civ 105), the long-running saga of which elements of the construction of a hydro-electric power plant should qualify for capital allowances.
This case is principally one of statutory construction. The court was clear that, even where a word was to be given its ordinary meaning, its interpretation was still a question of law and therefore capable of appeal. Further principles of statutory interpretation were also relevant, particularly the need to interpret the word by looking at it in its context, especially where it was included in a list of other similar items. In this regard, the court essentially found that it was entirely possible for the same word (in this case the word ‘tunnel’) to be used twice in the same piece of legislation but to be given slightly different meanings in each instance. The court held that it was not inconsistent to regard the use of the word ‘tunnel’ in CAA 2001 s 22 as requiring a transport connotation (in the sense that one would generally expect bridges, viaducts, embankments and cuttings to carry a road, railway or other means of transporting vehicles and people), even though it might have a wider meaning when used in s 23. The court made it clear that one did not always need to look at the broadest (or the narrowest) possible meaning of the dictionary definition, but instead the best meaning within the particular context. This is a useful reminder that, whilst reaching for the dictionary is part of the process, reviewing the word in context is at least equally as important.
The second theme relates to procedure. One part of the First-tier Tribunal decision had gone against SSE, but as it was on a relatively small part of the overall expenditure, SSE decided not to appeal this one point. Unsurprisingly, HMRC did appeal in relation to the larger amounts of expenditure, but SSE was not aware of this until after the normal date for making its own appeal on the smaller point had passed. The Court of Appeal held that, instead of raising it in the Upper Tribunal by way of its respondent’s notice, SSE should have instead asked for permission to extend the time limit for appealing the specific point and could not obtain a valid decision on it from the Upper Tribunal without having done so. Whilst this is a timely reminder to practitioners of the importance of procedural points when litigating, it is to be hoped that some direction is given to the tax tribunal that, in circumstances such as these, the party suffering the decision on the minor point should generally be given an extension to the time limit to appeal that point in circumstances where the losing party has already appealed the more substantial issue.
Finally, there has been massive expenditure on renewable energy projects in this country over the last few years and the new technologies that are emerging all the time in the sector, meaning that there is no established industry practice as to which elements of expenditure may qualify for capital allowances. It is frustrating for taxpayers to know that, in situations like these, they may face a legal fight lasting many years in order simply to be able to get to an overall tax position that is in line with their economic profit. The introduction of the structures and buildings allowance has removed the bright line that has existed since the removal of industrial buildings allowances, and which makes this particular case even more stark. However, given that many renewable projects only have a finite life, and may well require further costs to be incurred at the end of that life in order to decommission the assets and restore the land to its former position, it is difficult to see what good is served by a tax system that gives no relief at all for part of the expenditure, or only gives part of the relief at the end of the project’s life.
This was one of the questions that the Court of Appeal considered in SSE Generation Ltd v HMRC [2021] EWCA Civ 105), the long-running saga of which elements of the construction of a hydro-electric power plant should qualify for capital allowances.
This case is principally one of statutory construction. The court was clear that, even where a word was to be given its ordinary meaning, its interpretation was still a question of law and therefore capable of appeal. Further principles of statutory interpretation were also relevant, particularly the need to interpret the word by looking at it in its context, especially where it was included in a list of other similar items. In this regard, the court essentially found that it was entirely possible for the same word (in this case the word ‘tunnel’) to be used twice in the same piece of legislation but to be given slightly different meanings in each instance. The court held that it was not inconsistent to regard the use of the word ‘tunnel’ in CAA 2001 s 22 as requiring a transport connotation (in the sense that one would generally expect bridges, viaducts, embankments and cuttings to carry a road, railway or other means of transporting vehicles and people), even though it might have a wider meaning when used in s 23. The court made it clear that one did not always need to look at the broadest (or the narrowest) possible meaning of the dictionary definition, but instead the best meaning within the particular context. This is a useful reminder that, whilst reaching for the dictionary is part of the process, reviewing the word in context is at least equally as important.
The second theme relates to procedure. One part of the First-tier Tribunal decision had gone against SSE, but as it was on a relatively small part of the overall expenditure, SSE decided not to appeal this one point. Unsurprisingly, HMRC did appeal in relation to the larger amounts of expenditure, but SSE was not aware of this until after the normal date for making its own appeal on the smaller point had passed. The Court of Appeal held that, instead of raising it in the Upper Tribunal by way of its respondent’s notice, SSE should have instead asked for permission to extend the time limit for appealing the specific point and could not obtain a valid decision on it from the Upper Tribunal without having done so. Whilst this is a timely reminder to practitioners of the importance of procedural points when litigating, it is to be hoped that some direction is given to the tax tribunal that, in circumstances such as these, the party suffering the decision on the minor point should generally be given an extension to the time limit to appeal that point in circumstances where the losing party has already appealed the more substantial issue.
Finally, there has been massive expenditure on renewable energy projects in this country over the last few years and the new technologies that are emerging all the time in the sector, meaning that there is no established industry practice as to which elements of expenditure may qualify for capital allowances. It is frustrating for taxpayers to know that, in situations like these, they may face a legal fight lasting many years in order simply to be able to get to an overall tax position that is in line with their economic profit. The introduction of the structures and buildings allowance has removed the bright line that has existed since the removal of industrial buildings allowances, and which makes this particular case even more stark. However, given that many renewable projects only have a finite life, and may well require further costs to be incurred at the end of that life in order to decommission the assets and restore the land to its former position, it is difficult to see what good is served by a tax system that gives no relief at all for part of the expenditure, or only gives part of the relief at the end of the project’s life.
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