The Supreme Court in Orsted v HMRC [UKSC 12] ruled that pre-construction environmental studies do not qualify for capital allowances. The Court established a narrow "close connection" test, holding that expenditure must be directly "on" the plant rather than merely "in connection with" it. Studies providing advice on how to choose or design plant are considered too remote and fall "well outside the limiting curve" of qualifying costs.
When presented with a tax computation for review, the most important category of expenditure that frequently reveals hidden behaviours and compliance risk is what has been treated as ineligible for a tax deduction – the ‘non-qualifying’ costs.
