Building work associated with leasehold premises

My clients have incorporated their business and shortly after, purchased the freehold which they had previosuly rented.  The property comprises two shops and a dwelling, on one site.  It has been purchased privately by the directors and one shop is rented to the company.

Some improvements are being made - a new shop is being constructed to replace that currently being let to the company and when it is finished the original building will be knocked down.  This will improve the layout of the site so that the shop and the dwelling will each have their own driveway.

Having started the accounts I was dismayed to see that the client has been putting the redevelopment costs through the business.  Although they can recover the VAT if the company is invoiced, it appears to me that there would be no tax relief on the work at any point unless the owners of the freehold bear the costs in which case they would get tax relief when the property is sold.  It also seems to me that the value of the dwelling will be improved by the work done, in which case not all the improvements could be considered relevant to the company anyway.

I feel that the redevelopment costs should be borne by the freehold owners and the directors current account should be adjusted accordingly for costs paid so far.  The VAT claimed to date should be repaid.

I would be grateful for anyone's thoughts on this as working in isolation you have to argue every case with yourself!