Commissioners for His Majesty’s Revenue and Customs v SSE Generation Ltd [2023] UKSC 17 – UKSC Blog

In this post, Jack Prytherch, Of Counsel in the Tax Disputes & Investigations team at CMS, comments on the Supreme Court’s decision in HMRC v SSE Generation Ltd [2023] UKSC 17, which was handed down on 17 May 2023. The issue before the Supreme Court was the extent to which SSE Generation Ltd (“SSE”) was entitled to claim capital allowances on expenditure incurred when constructing the hydro-electric power station at Glendoe, Fort Augustus in Scotland (the “Glendoe Scheme”). The CMS Tax Disputes & Investigations team was pleased to have advised SSE on this case. Counsels for SSE were Jonathan Peacock KC and Michael Ripley.


Capital expenditure is not generally deductible from income for the purpose of calculating trading profits subject to corporation tax. However, the Capital Allowances Act 2001 (“CAA 2001”) provides for capital allowances to be claimed in relation to certain categories of expenditure, including on plant and machinery. Subject to specific exclusions set out in CAA 2001, Chapter 3, Pt 2 the general rule is that a company will be entitled to claim capital allowances where it has incurred capital expenditure on the provision of plant and machinery for the purposes of a “qualifying activity” ” (which includes the company’s trade).

The Glendoe Scheme is a state-of-the-art facility first opened by HM The Queen in 2009 and the only large-scale hydro-electric station of its type built in the UK in the last 50 years. Similar to other hydro-electric power stations, the Glendoe Scheme generates electricity by taking water at high pressure from a dammed area in order to drive a water turbine, which in turn engages a generator (with the water used then discharged into Loch Ness). The unique aspect of the Glendoe Scheme is that many of its assets are underground, thereby optimizing water pressure but also minimizing the environmental impact.

HMRC disputed a substantial proportion of the allowances claimed by SSE in respect of the Glendoe Scheme on the basis that, in their view, the relevant assets should be disqualified from relief by virtue of CAA 2001, Chapter 3, Pt 2. Broadly, those provisions include exclusions from plant and machinery allowances for the following main categories of expenditure:

  1. expenditure on the provision of a building, including the items set out in “List A” (CAA 2001, s 21);
  2. expenditure on the provision of a structure or other assets within “List B” (CAA 2001, s 22(1)(a)); and
  3. expenditure on works involving the alteration of land (CAA 2001, s 22(1)(b)).

Before the Supreme Court, the critical provision was Item 1 of List B(CAA 2001, s 22) (emphasis added):

A tunnelbridges, viaducts, aqueductembankment or cutting.”

If, as HMRC argued, the disputed items were a “tunnel” or an “aqueduct” for these purposes, the associated expenditure (approximately £200 million) would be disqualified from capital allowances. To the extent that the disputed items were so disqualified, SSE relied upon the saving provisions in List C, CAA 2001, s 23.

The lower courts

Meaning of “tunnels”: The First-tier Tribunal (“FTT”) held that SSE was entitled to claim allowances for some of the disputed items, but upheld HMRC’s view on others. The FTT considered that the words in List B are not “specialist terms” but instead have “ordinary English meanings”. In ascertaining those meanings, the FTT held that it was “legitimate to consider the way in which they have been grouped in the legislation, the assumption being that structures and assets which are specifically grouped together are likely to share some basic common theme” ([38]). In relation to Item 1 of List B, the FTT concluded that the relevant theme was one of structures related to transportation infrastructure, and that the ordinary meaning of the word “tunnel” in this context was a “passage bored through ground which permits people or forms of transport to pass to and fro”. On that basis, the FTT held that none of the disputed items was a “tunnel”.

HMRC lodged an appeal before the Upper Tribunal (“UT”) in respect of some of the items which the FTT had found did give rise to capital allowances. The UT dismissed HMRC’s appeal, while disagreeing with the FTT’s analysis in certain respects and remade the decision largely in SSE’s favour. In respect of the meaning of “tunnel”, the UT is considered that the ordinary meaning was “any form of subterranean passage” ([90]) but that the statutory context requires that the term should be given a narrower meaning than its ordinary dictionary definition.

The Court of Appeal agreed with the FTT on the ordinary meaning of the word “tunnel” and that the context was one involving a transportation theme.

Meaning of “aqueduct”:The FTT noted that the term “aqueduct” has two potentially relevant definitions under the Oxford English Dictionary:

  • an artificial channel for the conveyance of water from place to place; a conduit; esp. an elevated structure of masonry used for this purpose”; and
  • The similar structure by which a canal is carried over a river, etc.” (which has a more obvious transportation association).

The FTT held that, in the statutory context, the former meaning was correct – and that the transportation of water itself was sufficient to be consistent with the “transportation” theme of Item 1, List B (rather than requiring the water to be the means of transportation of other things, as in the case of a canal).

The UT agreed, deciding that “aqueduct” should be given its other dictionary meaning, and therefore limited to a bridge or viaduct-like structure which carries a canal (rather than merely conveying water to a destination). On that basis, the UT concluded that none of the disputed items was an “aqueduct” for relevant purposes.

On appeal by HMRC, the Court of Appeal expressed some difficulty in reaching its decision on the basis that the definition adopted by the UT would “exclude many spectacular and elegant structures that have been left to us from ancient times and are commonly thought of and referred to as aqueducts”. However, the Court held that the principle of noscitur a socialist should apply to limit the ordinary meaning to a particular type of aqueduct with a transportation theme.

Supreme Court’s decision

The Supreme Court unanimously dismissed HMRC’s appeal, holding that the disputed items were neither a “tunnel” nor an “aqueduct” within the meaning of List B. On that basis, it did not need to consider SSE’s cross appeal based on the saving provisions in List C, CAA 2001, s 23.

In relation to “tunnel”, the Supreme Court held that the Court of Appeals (and tribunals) had been correct to consider the statutory context. The Supreme Court agreed with SSE that, in the drafting of List B, a choice had been made to group the relevant structures in separate lists and that it was reasonable to conclude that those grouping choices were made for a thematic reason. That theme linking Item 1 of List B was that of structures related to the construction of transportation routes or ways, such that a “tunnel” in this context is a “subterranean passage through an obstacle for a way (such as a railway, road, or canal) to pass through”. HMRC’s approach, on the other hand, gave no effect to that statutory context and did not offer any explanation for the groupings made in List B.

On that same thematic basis, the Supreme Court held that “aqueduct” means a “bridge-like structure for carrying water, which includes but is not limited to carrying a canal”. According to the Supreme Court, this was the common ordinary meaning and the general transportation theme did not compel the more limited meaning of a bridge-like structure carrying a canal which was given to it by the UT and Court of Appeal (thereby addressing one of HMRC’s arguments, which was that the Court of Appeal’s definition was arguably limited to historic structures).


The Supreme Court’s decision reinforces the importance of context when determining the meaning of words used in the statute, and is therefore of potential significance for both tax and non-tax cases.

This long-running dispute was essentially brought about as a result of the unique design of the Glendoe Scheme. Had the disputed elements of the Glendoe Scheme been built above ground (ie, at the expense of engineering integrity and environmental concerns), they would have likely qualified for capital allowances on HMRC’s case. Aside from the material amounts of tax at stake, therefore, the Supreme Court’s decision brings welcome clarity to SSE and other similar businesses when considering the viability of further infrastructure projects to develop renewable power in the UK.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top