It Was There Before - Farm Drive
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recent tax case G
Pratt and Sons v HMRC (TC 1269) involved income tax relief on
farm drive and the result should bring a smile to the farming
farming partnership appealed against an amendment to
the partnership tax return made by HMRC in May 2010 under TMA 1970, s
28B. HMRC wanted to
treat the expenditure of
repairing an existing drive as capital.
amendment increased the partnership income tax profit on the basis that
related to costs which were capital in nature, and therefore not
allowable as a
deduction in the accounts as income tax allowable
cause of the dispute with HMRC was the resurfacing
of the farm drive at a cost of £23,300.
HMRC argued that the farm drive should have been regarded
‘entirety’ in its own right, and that concreting it was to provide an
new and better surface than before. HMRC
argued that it should therefore not be allowed as income tax
the taxpayer, the farming partnership, argued
that the new surface of the drive had been laid over the old tarmac
filling in potholes and replacing the old drive which was there
before. The argument was that the
work created a
hard-core base over the original stone.
The taxpayer held to his view that nothing new had been
added to the
drive; it was simply a repair.
First-tier Tribunal agreed with G Pratt and Sons
that the work on the farm drive consisted of a concrete surface being
over the existing one and was a repair to an existing asset and
allowable for income tax. The
the farming partnership was allowed by the Tribunal.
key tax planning point of this case has to be that
there was an existing concrete track.
Had there just been a “muddy path” HMRC would have had a
highlights the need for
all farm improvements and repairs to be fully reviewed by both the
tax practitioners and ideally before the
expenditure is incurred!
some farming operations producing profits which
have increased through improved diversification and diversification
there is much more money being “ploughed” (deliberate pun) into the
first glance the decision in Pratt
might seem a reversal of the decision in the Moonlight
Textiles Ltd case (Moonlight Textiles v
HMRC TC 755). However,
principle exists in both cases as there were substantial alterations
the Moonlight case, whereas in the
Pratt and Sons case as regards the concrete road “it was there before”
being repaired. In
this case Moonlight
Textiles Ltd arranged for building work at its premises which involved
substantial alterations and claimed a deduction for the cost of this
work as a
corporation tax expense. Following
enquiry, HMRC issued an amendment on the basis that £34,000 of the
expenditure should be treated as capital.
Textiles Ltd appealed on the basis that the
expenditure should be treated as a repair.
The First-tier Tribunal rejected this contention and
dicta of Buckley LJ in
the (non-tax) case of Lurcott v Wakely
& Wheeler, CA
(1911) 1 KB 905, ‘repair is
restoration by renewal or replacement of subsidiary parts of a
whole. Renewal, as distinguished
from repair, is
reconstruction of the entirety, meaning by the entirety not necessarily
whole but substantially the whole subject matter under discussion.’
practitioners, the complexity of the judgement
calls that are required where there are major repair or alterations do
in many cases it is not enough to make decisions based on invoices,
to be a full understanding of what was there before and
after. Site visits and
photographs before and after the
work would provide beneficial assistance in decision making and ensure
correct tax relief is claimed.
About the Author
Supplied by Julie
Butler F.C.A. Butler
& Co, Bennett House,
The Dean, Alresford, Hampshire, SO24 9BH.
Tel: 01962 735544. Email; firstname.lastname@example.org,
the author of Tax Planning for Farm and Land Diversification (Bloomsbury Professional), Equine
ISBN: 0406966540, and the forthcoming Stanley:
Taxation of Farmers and Landowners (LexisNexis)
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Article Published/Sorted/Amended on Scopulus 2012-02-29 11:17:15 in Tax Articles