SSE has won a battle with the UK tax authority over its treatment of investment in a power plant in a case that could bolster investment in clean energy.
The Supreme Court, the UK’s final court of appeal, ruled that the FTSE 100 energy company was entitled to claim capital allowances on about £200mn of spending on the Glendoe hydroelectric plant above Loch Ness in Scotland.
The long-running dispute centred on whether parts of the power station counted as a “tunnel” and “aqueduct”, which would not qualify for capital allowances.
Angus Walker, partner at BDB Pitmans law firm in London, suggested the judgment would bolster confidence in the renewable sector. “It’s vital that potential investors know that the tax regime will not penalise them unfairly,” he said.
HMRC said it was “carefully considering” the judgment.
It comes as several renewable energy companies have been at odds with the government over windfall taxes on sales of electricity, introduced last year to offset surging power prices.
SSE is one of Britain’s largest energy companies, owning hydropower plants as well as gas-fired power stations, wind turbines and electricity networks.
It has set out plans to invest £24bn in the UK over the next decade, including in carbon capture and hydrogen projects.
It started building the Glendoe plant in February 2006, with much of the station built underground to help lower costs and environmental impacts.
The dispute with HMRC started after it said SSE had made “excessive” claims for capital allowances between 2006 and 2012, court documents show.
SSE appealed against the decision, triggering a series of rulings and appeals that ended up in the Supreme Court, which was asked to rule on an appeal from HMRC and a cross-appeal from SSE.
The capital allowances system enables companies to deduct spending against income when calculating profits for corporation tax.
However, rules prevent companies from offsetting investment on a “tunnel, bridge, viaduct, aqueduct, embankment or cutting”, the papers show.
In the unanimous judgment published on Wednesday, Lord Justice Hamblen rejected the tax authority’s argument that part of SSE’s plant at Glendoe fell into that bracket.
While the ordinary meaning of “tunnel” covers “any underground passage”, it can also mean “a roadway excavated underground”, he noted. “For all the reasons, set out above, I reject HMRC’s suggested interpretation of both ‘tunnel’ and ‘aqueduct’.”
SSE said the decision provided “welcome clarity” on tax treatment for “essential low carbon assets”. It added: “Such allowances and credits play an important contributory role in low carbon investments.”
HMRC said: “We note the decision of the Supreme Court in this case and are carefully considering the judgment.”
