Consultation postponed on the tax treatment of predevelopment costs

Image:  With kind permission of Liam Watts (formerly Orsted, now Cosmic Group).

Announced at Autumn Budget 2024, the government committed to undertaking a consultation on the tax treatment of predevelopment costs, pertinent to large infrastructure projects.  On 11 April 2025, HM Treasury has announced that this consultation shall be postponed.

This follows the Court of Appeal judgement that was handed down in the case of Orsted West of Duddon Sands (UK) Limited and others v HMRC (also known as the 'Gunfleet Sands case') on 17 March 2025.

See E³ Consulting article discussing the outcomes of this case - Court of Appeal decision in Orsted West of Duddon Sands (UK) Ltd and others v CRC.

This case has significant implications in matters affecting this consultation - a position far more closely aligned to that expected by those advising on Capital Allowances in practice than the prior Upper Tribunal decision that preceded this decision.

According to HM Treasury, "Following the Court of Appeal judgement on 17 March on matters with significant readout across to this issue, the publication of the consultation on the tax treatment of predevelopment costs is being postponed. The government is considering the implications of the judgment for the consultation. To give stakeholders and government time to reflect on the judgement, the government will determine its next steps in respect to this consultation in due course.

"In the interim, the government welcomes views on what this judgement means for you or the businesses you represent. Do let us know via predevcosts@hmtreasury.gov.uk"

On 23 April 2025 it was announced that HMRC had appealed the Court of Appeal's decision to the Supreme Court - not surprising given the sums involved and the 'see-saw' decision making to date.  Albeit, E³ Consulting does expect that the Supreme Court will uphold most, if not all, of the Court of Appeal's decision.

It could therefore be some time before we see a conclusion of the Orsted West of Duddon Sands ('Gunfleet Sands') tax case and in turn the consultation being reinstated or potentially becoming unnecessary!  It is our expectation that the outcome of the Supreme Court hearing will now likely be in 2026.