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SSE Hydroelectric Power Generation – Capital Allowances

Updated: Jul 5, 2020

Image Source SSE

SSE Generation Ltd (SSE) claimed 87% (£261 million) of its £300 million of costs associated with the construction (and later rectification) of its hydroelectric power generation scheme at Glendoe, near Loch Ness in Scotland. HMRC accepted that some £34 million was eligible for plant and machinery allowances but disputed around £227 million.

The Scheme incorporated large items of plant and machinery for the generation of power which were not in dispute. The key issue was whether the significant building and structural elements associated with the provision and installation of the qualifying items were eligible.

Both parties sought a decision in principle on the various disputed items, on the basis that quantum could be determined at a later stage by the Tribunal (if not agreed between the parties).

The project

The hydroelectric power generation scheme is the first large-scale hydroelectric scheme with a conventional hydraulic head feed built in the UK in the last 50 years, and is capable of producing 100MW of power. Because of the volume of water available to it from the relevant catchment areas, it can only operate for some 18% to 20% of the time. The nature of its design means it can be brought online within a matter of minutes when the need arises.

Construction of the Scheme began in February 2006 and was completed in December 2008. It was officially opened by Her Majesty the Queen on 29 June 2009. Shortly after that, it was discovered that major remedial works were required to deal with problems caused by a subterranean rockfall. Those rectification works commenced in 2010, with the Scheme only becoming fully operational again in August 2012.

The disputed items

The scheme consisted of different structural elements, and the parties disagreed about the correct tax treatment of most:

  1. Water intakes

  2. Conduits

  3. Reservoir and dam (no dispute as no claim made)

  4. Main intake

  5. Headrace

  6. Power cavern

  7. Transformer cavern

  8. Tailrace

  9. Access tunnels

There was general agreement that the scheme was not a single asset in its entirety and the qualifying plant or machinery had to be considered on a piecemeal basis and although there was debate on how to group assets for this purposes the decision was made on (1) to (9) above.

The technical arguments

The decision rested on the interpretation and application of s11, and s21 to s23 Capital Allowances Act 2001 and specifically the eligibility of:

  1. The alteration of land for the purposes only of installing plant or machinery

  2. Expenditure on the provision of pipelines, or underground ducts or tunnels with a primary purpose of carrying utility conduits.

Some of the assets upon which a claim had been based by SSE had more than one purpose (e.g. the caverns used for access and operation) which were to be regarded by Tax Tribunal as the setting, or premises, on which the business was carried on.

HMRC favoured a prescriptive interpretation of s22 which deals with excluded structures, assets and other works; and highlighted the inconsistencies in labelling by the engineers and others in technical discussions (e.g. conduits described as aqueducts or tunnels). Tax Tribunal did not support this view and favoured a more thematic interpretation to s22 and closer examination of context.

HMRC also also sought to limit the application of expenditure in s23 which contains expenditure that is capable of being unaffected by s22. Tax Tribunal reinforced the need to approach claims chronologically, starting with the general principles contained in s11 before moving on to s21-22 and s23 respectively.

The decision

Tax Tribunal allowed SSE’s appeal in part and a summary of the outcomes is below:

  1. Water intakes – allowed in full

  2. Conduits – allowed in part

  3. Headrace – allowed in full

  4. Power cavern – mostly disallowed

  5. Transformer cavern – mostly disallowed

  6. Tailrace – allowed in full

  7. Access tunnels – mostly disallowed

The parties are at liberty to apply for determination of any unresolved disputes of amount or detail, if they are unable to reach final agreement on the basis of this decision in principle.


Whilst a project of this type and size is unusual, the decision does help reinforce some fundamental interpretations of statute that will have wider application. Not just for other hydro schemes but other infrastructure projects. Given the magnitude of costs involved it remains to be seen whether either party will appeal.

A copy of the decision which was published on 31 July 2018 can be found here.


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