R (Cobalt Data Centre 2 LLP and Another) v Commissioners for HM Revenue and Customs

Why It Matters

The ruling determines which construction contracts qualify for capital‑allowance relief, directly influencing developers' tax strategies and the financial viability of enterprise‑zone investments.

Key Takeaways

• Section 298(1B) contract must be for building within enterprise zone.
• 10‑year designation period governs contract entry, not expenditure timing.
• 1992 amendment introduced 20‑year long‑stop for incurred expenditure.
• Section 5 postpones expenditure recognition beyond four months of payment.
• Interpretation hinges on site‑specific contract, not any enterprise‑zone building.

Summary

The video dissects a tax‑law dispute concerning the interpretation of section 298 of the Capital Allowances Act 2001, which governs capital‑allowance relief for construction projects in designated enterprise zones. The debate centers on whether the term “contract” in subsection 1B applies to any contract entered during the ten‑year designation window or must be limited to a contract for the specific building that ultimately benefits from the allowance.

Counsel highlighted that both the Upper Tribunal and the Court of Appeal have read the provision broadly, yet argued that statutory purpose – to spur rapid development within a ten‑year zone – imposes an implicit limitation. They traced the legislative history: the original 1980 scheme allowed contracts entered within ten years with no long‑stop, while the 1992 amendment introduced a twenty‑year cap on when expenditure could be incurred. Section 5 further refines timing by deferring the “incurred” date until payment is made, unless payment occurs within four months of an unconditional obligation.

Key excerpts included the budget press release’s paragraph four, which outlines the ten‑year designation and associated fiscal incentives, and a discussion of the transitional provision for the now‑defunct development land tax. Practical examples illustrated how staged building contracts can push actual payments – and thus the recognised expenditure – beyond the ten‑year window, invoking the twenty‑year long‑stop.

The interpretation has direct consequences for developers seeking capital‑allowance claims: only contracts tied to the specific enterprise‑zone site and entered within the ten‑year period qualify, and any related expenditure must fall within the twenty‑year limit. Clarifying this scope will shape tax planning, investment timing, and the overall attractiveness of enterprise‑zone projects.

Original Description

R (on the application of Cobalt Data Centre 2 LLP and another) (Appellants) v Commissioners for His Majesty’s Revenue and Customs (Respondent)

UKSC/2022/0174

https://www.supremecourt.uk/cases/uksc-2022-0174.html

Hearing date: 25 January 2024

Session: Morning session [Session 3 of 4]

Judgment date: 20 November 2024

Neutral citation: [2024] UKSC 40