More Than Patch Repairs Can Still Be A Revenue Expense
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Following hot on the heels of the
Cairnsmill Caravan Park
v HMRC TCO 2580), the taxpayer has enjoyed another victory in arguing
expenditure should be treated as a revenue expense as opposed to a
The recent case in question,
(Hopegear Properties Ltd v
HMRC TCO2734), concerned expenses on the repairs and widening of the
entrance road to an industrial estate.
The expenses comprised the repairs and widening of the
road itself, repairs to footpaths and re-laying of fibre optic cables,
landscaping costs, changes to an existing car park, and the
construction of a
temporary access road for the duration of the repairs.
A small amount of the expenditure relating to
the temporary diversion costs necessary to carry out the road works had
been capitalised by the taxpayer.
HMRC argued that the entire amount
of the expenditure was
capital in nature, being one overall alteration to the industrial
Tribunal however found the HMRC
objections surprising, going so far as to comment “there should have
dispute as to deductibility of these costs and it is surprising that
objections have been raised”.
In reaching their decision, the
Tribunal had separated
the expenditure into three separate headings:
The Tribunal rejected the HMRC
view that “the road could
have been patch repaired, and the fact that this was not done makes the
expenditure capital”. Given
that a small
amount of the temporary diversion costs had already been capitalised,
accepted that the remaining amounts were revenue expenditure, which
incidental to expenditure on the main entrance road.
The Tribunal found that the costs
associated with the
cable works were all revenue in nature, as the work only affected part
cabling system on the site, and should therefore be seen as one entire
asset. The tribunal
went on to say that
“the installation of new cabling was of such a minimal amount that it
said that it created a new capital asset”.
The costs were therefore allowed as a revenue expense.
The expenditure incurred under
this heading comprised
work on the front car park and the reinstatement of
footpaths. Again, the Tribunal found
that the whole
amount of these costs were revenue in nature.
Accordingly, the Tribunal allowed the taxpayer’s appeal
its views with the following statements:
“There is no scheme of alteration. The expenditure,
itemised, can be
considered individual pieces of work and allowable as revenue
“The relevant entirety (the road
network, cable network
and Bankside House) is the asset being repaired.
The nature and extent of the work shows that
there has not been a reconstruction, replacement or renewal of the
substantially the whole of the asset.
The character of the assets has not changed when the
overall effect of
the work is examined”.
“The expenditure is clearly
identifiable and sufficiently
concept of notional
repairs is not a relevant consideration. It is accepted by the Tribunal
the widening work on the road is a capital expenditure and other
directly relating to that widening would also be a capital expenditure.
have been indicated in the decision above.”
The work on the car park and
footpath were thus deemed to
be a repair.
With the success of Pratt,
Cairnsmill and now Hopegear,
there is now every reason for
farmers and landowners to be positive about the deductibility of the
expenditure they incur. Each
these cases offers the taxpayer a little more clarity as to what
constitutes a revenue expense, and any repairs currently under
should be examined in context with the details and comment contained
results of these recent decisions.
The key is to plan ahead and to
consider the entirety of
the planned works, what was there before, and the valuation before and
the project has taken place. It
be enough to take a broad-brush, general approach.
It is recommended that a complete review of
proposed work relating to repairs and renewals is undertaken, to ensure
costs are analysed correctly and split into capital or revenue
and landowners can
then be sure that the best tax position is achieved, particularly in
the recent rulings alluded to above.
About the Author
by Julie Butler
F.C.A. Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email: email@example.com.
F.C.A. is the author of Tax Planning for
Farm and Land
Equine Tax Planning ISBN: 0406966540, and Stanley:
Taxation of Farmers and Landowners
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Article Published/Sorted/Amended on Scopulus 2013-11-29 09:15:28 in Tax Articles