The short answer
How the UK currently treats predevelopment costs after the Orsted judgment, what may qualify for plant and machinery allowances, and what the 2026 consultation asks.
UK businesses planning large infrastructure, energy or plant projects should separate predevelopment costs from the later cost of providing the plant or machinery. The Supreme Court's 2026 judgment in Orsted West of Duddon Sands Ltd and others v HMRC confirmed that certain preparatory studies and surveys were not incurred “on” the provision of plant or machinery for plant and machinery allowance purposes.
HM Treasury published a consultation on 13 July 2026 to understand how businesses interpret the current treatment and how the uncertainty affects investment decisions. The consultation is not a new deduction, a new capital allowance or a change to the law. It is a request for evidence and views; responses are due by 21 September 2026.
The practical starting point remains the current law and HMRC guidance. Costs incurred to assess feasibility, choose a site, obtain planning permission, gather data or decide whether a project should proceed will not normally be sufficiently close to the provision of a specific plant item. Costs directly connected with acquiring, transporting or installing identified plant may be treated differently.
For the wider capital-allowance framework, see the UK capital allowances guide. This page focuses on the predevelopment boundary and the 2026 consultation.
The “on” test is narrow
Early feasibility costs are at risk
2026 consultation is not new law
What counts as a predevelopment cost?
Predevelopment costs are early-stage costs incurred before the main construction, installation or operation of an investment project. The consultation gives examples such as feasibility work, regulatory approvals and preparatory activities.
Depending on the project, the early-stage work may include:
- feasibility studies and options analysis;
- site surveys and environmental studies;
- planning or regulatory applications;
- early design and engineering work;
- project management and development advice; and
- investigations into whether and how the project should proceed.
The commercial importance of a cost does not decide its capital-allowance treatment. A cost can be essential to a project and still fail the statutory test for plant and machinery allowances if it is not incurred on the provision of the plant itself.
What did the Orsted judgment decide?
The HMRC Capital Allowances Manual explains that the case concerned studies and surveys used to identify and assess potential offshore windfarm sites. Some work was required by regulators and took place before the windfarms were designed, constructed or brought into use.
The Supreme Court confirmed that the relevant expenditure did not qualify for plant and machinery allowances under the statutory “on the provision of” test. HMRC's manual emphasises that the judgment confirms a close connection is required and that the case does not create a new general test for every capital project.
The result is not that every design or professional fee fails. It is that the connection must be analysed by reference to the actual plant or machinery and the stage and purpose of the work.
The current distinction: project decision versus plant provision
| Cost activity | Current high-level risk position |
|---|---|
| Deciding whether a project should proceed | Usually too remote from a specific plant item |
| Comparing sites or technologies | Often preparatory and not “on” plant provision |
| Obtaining planning or regulatory approval | Does not normally become plant cost merely because approval is necessary |
| Design of the wider project or setting | Needs a close connection to identified plant; wider design may fall outside |
| Final engineering design integral to manufacturing or installing specific plant | May qualify where the direct statutory connection is established |
| Expert work checking delivered machinery at the installation site | HMRC gives this as an example of a potentially close connection |
| General site management, insurance or temporary facilities | May require apportionment; no automatic full qualification |
This table is a screening tool, not a blanket answer. The invoice description, contract scope, asset identification, timing and actual use of the work all matter.
Professional fees and design costs
HMRC's CA20070 guidance says professional fees, such as survey, architect, quantity-surveyor, structural-engineer, service-engineer and legal costs, qualify for plant and machinery allowances only where they relate directly to the acquisition, transport and installation of the plant or machinery and form part of the expenditure incurred on its provision.
The same manual distinguishes early studies from final detailed engineering design. A design that is integral to constructing or installing a specific item, without which the plant could not be manufactured or installed, may qualify. By contrast, a study that informs whether the project should proceed, selects a site or provides general inputs for development will not normally qualify.
Do not classify a whole professional-services invoice from its supplier name. Break it into identifiable work packages and document the link to the specific asset.
Preliminaries and apportionment
Preliminaries are indirect costs incurred during a construction project. HMRC gives examples such as site management, insurance, general-purpose labour, temporary accommodation and security.
Where a project includes qualifying plant, only the part of the preliminary cost that can properly be regarded as being on the provision of plant or machinery can qualify. Some costs may be inherently incapable of attribution; others may be apportioned between qualifying and non-qualifying work.
HMRC's guidance says there is no single correct answer for every project. A business should be able to explain the methodology, the asset connection, the evidence and why the allocation is reasonable. Where a pro-rata approach is used, the guidance also describes circumstances in which the Valuation Office should be consulted.
What the 2026 consultation is asking
The consultation asks businesses and advisers about:
- the predevelopment costs they incur;
- their understanding of the current treatment after the Supreme Court judgment;
- remaining uncertainty in applying the legislation; and
- how the treatment affects investment decisions and wider commercial goals.
The government says it is focusing on predevelopment costs more directly required before plant and machinery can be installed or operated. The consultation is not considering all capital expenditure and expressly identifies areas such as intangible assets, land transactions and abortive expenditure as outside or separately treated areas.
Responses are due by 11:59pm on 21 September 2026 to [email protected]. This deadline is a consultation deadline, not a tax-return or capital-allowance claim deadline.
Consultation status matters
The July 2026 consultation seeks evidence about uncertainty and commercial impact. It does not change the current capital-allowance treatment, create a safe harbour or confirm a future deduction for predevelopment costs.
How businesses should review a project file
Map the project stages
Separate feasibility, planning, site selection, development, construction, installation and operational stages. Record when a specific item of plant was identified and when the work became integral to its provision.
Break down invoices and contracts
Do not put every early-stage invoice into a single “capital project” pool. Identify the service, deliverable, asset, date and business purpose for each work package.
Link costs to the plant
For a potential qualifying cost, show how it relates directly to acquisition, transport, installation, manufacture or final engineering of the specific plant. A general statement that the cost was necessary for the project is weaker evidence.
Separate non-qualifying categories
Keep planning, land, financing, intangible-asset, aborted-project and general overhead costs separate from plant costs. Some may have a different tax treatment, but they should not be included in plant allowances without a separate analysis.
Preserve the allocation method
If preliminaries or professional fees are apportioned, retain the calculation, assumptions, time records, drawings, contracts and reasoned explanation. Review the allocation when the project scope changes.
Current law versus possible future policy
| Question | Current evidence | Future status |
|---|---|---|
| Do early feasibility studies qualify automatically? | No; HMRC guidance generally treats them as too remote from plant provision | Consultation may inform future policy, but no change is enacted |
| Do final plant-specific designs qualify automatically? | No; the close statutory connection must be shown | No automatic safe harbour announced |
| Is the Supreme Court judgment a new universal rule? | HMRC says it confirms the existing “on” test and remains fact-specific | Further clarification may follow the consultation |
| Has a new predevelopment relief started? | No | No relief or commencement date announced |
Frequently Asked Questions
Classifying predevelopment expenditure
Create a schedule showing date, supplier, description, VAT, payment method, project stage and intended use. Mark each item as revenue, capital, financing, abortive or a cost of acquiring an asset. Keep planning documents, feasibility work, professional advice, contracts and evidence of when the trade or project began. A cost can be relevant to more than one tax, so an Income Tax deduction does not automatically decide VAT or Capital Gains Tax treatment.
If the project is abandoned, record why and whether the expenditure relates to a later activity. Connected-party invoices need evidence of commercial value and business purpose. Reconcile the schedule to the accounts, remove private or duplicated costs, and preserve the original ledger and any adjustment. Record any claim, election or commencement-date conclusion with the return.
A project-cost file that survives a tax review
Create a schedule for each cost showing the date, supplier, description, VAT, payment method, project stage and intended use. Mark whether it is revenue, capital, abortive, financing or a cost of acquiring an asset. The same invoice can be relevant to more than one tax, so do not assume that an Income Tax deduction also answers the VAT or Capital Gains Tax treatment.
Keep contracts, feasibility work, planning documents, professional advice and evidence of when the trade or project began. If a project is abandoned, record the reason and whether the cost relates to a later activity. Connected-party invoices need extra support for the commercial value and business purpose.
Before filing, reconcile the schedule to the accounts and remove private or duplicated costs. Preserve the original ledger and any adjustment. If the treatment depends on a claim, election or commencement date, record that decision and check the current HMRC guidance for the relevant year.
Are predevelopment costs tax deductible in the UK?
What did the Orsted Supreme Court judgment change?
Do planning costs qualify for capital allowances?
What is the deadline for the predevelopment-costs consultation?
Will the consultation create a new tax relief?
Are professional fees and feasibility studies capital-allowance costs?
Does the Orsted judgment affect every development project?
What records should a business keep for predevelopment costs?
Read the current HMRC Orsted guidance, professional-fees guidance and HM Treasury consultation before preparing a claim. The treatment remains fact-specific and the consultation may lead to future changes.
Official sources
- HM Treasury: tax treatment of predevelopment costs consultation
- HMRC Capital Allowances Manual: Orsted case
- HMRC Capital Allowances Manual: professional fees and preliminaries
- HMRC: Finance Bill 2026/27 draft legislation
These HM Treasury and HMRC sources are the official references for the current capital-allowance boundary, the Orsted judgment guidance and the separately labelled 2026 consultation.
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Review notes and assumptions
Reviewed
2026-09-20
Assumptions
- This guide describes the current HMRC capital-allowance guidance and the open HM Treasury consultation published in July 2026; it does not announce a new relief or deduction.
- The tax result is fact-specific and depends on the expenditure, the asset, the stage of the project and the statutory connection to the provision of plant or machinery.
- The consultation excludes or separately treats some areas, including intangible assets, land transactions and abortive expenditure; final policy may change after consultation.