The Supreme Court (SC) decision in HMRC v SSE Generation Limited affirmed the 2021 Court of Appeal (CA) decision in all important aspects. This case, involving a hydroelectric plant, concerned specifics of the definition of 鈥榮tructure鈥� for capital allowances purposes. The CA decision had expounded the principle noscitur a sociis (the 鈥榠mmediate context鈥� rule) to show how a word in tax statute such as 鈥榯unnel鈥� or 鈥榓queduct鈥� can take a specific meaning from the surrounding words. The CA had dismissed HMRC鈥檚 appeal against the decision of the Upper Tribunal (UT), barring one procedural point.
Background and summary
In , SSE Generation Limited (SSE) spent 拢300 million on a hydroelectric power generation scheme. HMRC disputed 拢227 million of SSE's 拢260 million capital allowances claim, including:
- Water conduits between the water intakes and the main reservoir (used for gathering water into the reservoir);
- The headrace (carrying water to the turbine); and
- The tailrace (carrying water away from the turbine into Loch Ness).
It was undisputed that these assets were plant under common law and that they were structures that would fall within the definition of industrial buildings. The expenditure would thus qualify for capital allowances unless it fell within Items 1-6 of List B in s.22 CAA 2001.
Tunnels and aqueducts
The disputed items would not qualify for allowances if they were 'tunnels' or 'aqueducts' within Item 1 of List B s.22 CAA 2001. HMRC had argued for a wide reading of these terms, and that the items should not fall in any of the List C exceptions. The CA decision had confirmed that these terms - in their context - should only be applied to tunnels or aqueducts used for transportation. On this basis allowances were not denied by Item 1 and the expenditure was able to fall in Item 7 based on the 'industrial building' definition being met.
The rationale was that Item 1 should be taken to be related only to transportation as the other items listed in Item 1 are transport assets such as bridges and viaducts. (Questions about List C were not relevant in the CA judgment as they ruled that the expenditure fell outside List B and did not need the 'get out of jail card' of Item 22 (or Item 25) in List C.)
The SC confirmed the CA鈥檚 approach to tunnels
The SC continued to reject HMRC鈥檚 analysis on aqueducts. The SC decided that the CA was also wrong to restrict the meaning of 鈥榓queduct鈥� to a bridge-like structure designed to carry a canal (i.e. enabling an underlying transport function): the SC ruled it could also be a bridge-like structure designed to carry any water (i.e. itself having a transport function). On both bases the taxpayer鈥檚 claim to allowances was upheld.
Conclusion
The decision in this case is fact-specific, but it serves as a reminder that when construing statutory language:
- Words will normally take their standard English meaning; but
- The legislative setting in which a term is used will flavour its specific meaning.
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