Steven Gee KC – British Tax Review – R. (on the application of Cobalt Data Centre 2 LLP) v HMRC: a Cobalt white elephant

22 Mar 2023

This material was first published by Thomson Reuters in the British Tax Review as “R. (on the application of Cobalt Data Centre 2 LLP) v HMRC: a Cobalt white Elephant” [2023] B.T.R. 24 and is reproduced by agreement with the publishers.


Section 298(1) of the Capital Allowances Act 2001 (CAA 2001) offered taxpayers Enterprise Zone allowances (EZAs) as an inducement to taking on the financial risks of newbuild industrial developments in disadvantaged areas, without a tenant. It extended their availability for a further 10 years after expiry of the 10-year life of an enterprise zone (EZ), provided that the qualifying “expenditure is incurred under a contract entered into within” the first 10 years (“the proviso”). According to the Court of Appeal1 changes made to a development, resulted in two building contracts with the claimed expenditure incurred under the second, being a “separate” contract
made too late to qualify for EZAs. The three judgments are not consistent with each other, and decided by different routes that the changes by their nature and extent were so different from the initial plan that they resulted in no EZAs. Taxpayers, having built what parliament wanted, are left to take the losses without the safety net of the statutory inducement. If the offer made to taxpayers was to be restricted, this should as a matter of certainty and fairness have appeared clearly in the statutory words. The decision may affect many other developments by taxpayers who ran financially unviable risks. Investors include those who have died leaving dependants, are in retirement, and on pensions…”

To read full case note please click here.