Share this content
34

tax relief or not?

repair or capital?

Didn't find your answer?

Tennis club has replaced their tarmac courts with clay courts.  The court surface needs replacing every 15 years and this time they have chosen clay, which is a superior surface.  The cost was significant.

Would you treat this as capital or repair?  this will of course then affect the tax treatment.

 

Replies (34)

Please login or register to join the discussion.

avatar
By Ben McLintock
12th Jun 2020 11:42

I vote capital

Thanks (3)
avatar
By Accountant A
15th Jun 2020 18:16

ih''p

Thanks (2)
Hallerud at Easter
By DJKL
12th Jun 2020 11:53

Is it the double glazing replacement of single glazing point or the roof not replaced at the same height point?

I think I would need to know a bit more about the nature of the two surfaces, respective durability of replacing tarmac with tarmac or tarmac with clay to really comment; we know we had tennis courts before and presumably we still have tennis courts in same position and same number after?

Thanks (0)
Replying to DJKL:
avatar
By snickersinatwix
12th Jun 2020 11:58

I am not a tennis boffin, but my understanding is that tennis on a clay court is quite different to tennis on a tarmac court. So the decision to upgrade to clay is more about the quality of the game rather than the durability of the surface. I believe tarmac is the poor man's relation

Thanks (0)
Replying to DJKL:
Psycho
By Wilson Philips
12th Jun 2020 12:10

Tarmac and clay (and grass for that matter) are quite different surfaces. Whether one is 'better' than the other depends on your style of play. Which is why relatively few French Open winners have won other Grand Slam tournaments. Clay is therefore not the 'modern equivalent' of tarmac.

I vote capital.

Thanks (2)
avatar
By lesley.barnes
12th Jun 2020 11:58

I vote capital with the caveat that we don't have the full facts. I'm assuming ( a big assumption) from what you have said that the whole surface was ripped up and replaced with clay. If not I would suggest that you look at G PRATT & SONS v HMRC.

Thanks (1)
Replying to lesley.barnes:
Hallerud at Easter
By DJKL
12th Jun 2020 12:06

But is a wearing surface the essential total of a court, is the substructure etc,which presumably was not dug out , not part of the court? If there are say stands around the court that were not touched do we view the stands and actual court as one?

A roof replacement may be repair because it is part of the overall building, the roof is not itself an individual asset, re the courts I really could not say what "makes" a court?

Thanks (0)
Replying to DJKL:
avatar
By lesley.barnes
12th Jun 2020 13:55

I couldn't say either and if they used the old surface as part of the hard core and there were parts that remained from the existing court then Pratt v HMRC could be the answer. The OP would need to do some "digging" - sorry as to what the build consisted of. The club presumably have plans, drawings, surveys etc of the building work carried out. If the amounts at stake are significant I might be tempted to seek an expert opinion in this case.

Thanks (0)
Replying to lesley.barnes:
Hallerud at Easter
By DJKL
12th Jun 2020 16:13

Agreed, they really ought to let a pro check to set their mind at rest and see if they can take advantage of a favourable interpretation, such an approach would likely serve them well and they will love their accountant if he/she can match their expectations or game their tax position.

Thanks (0)
Replying to DJKL:
avatar
By Tax Dragon
12th Jun 2020 17:20

What the deuce?!

Thanks (1)
Replying to Tax Dragon:
Hallerud at Easter
By DJKL
12th Jun 2020 19:48

Ace reply.

Thanks (0)
Replying to DJKL:
By Paul D Utherone
15th Jun 2020 10:13

Love it

Thanks (0)
RLI
By lionofludesch
12th Jun 2020 12:11

I vote capital.

Are we talking capital allowances ?

Thanks (2)
Replying to lionofludesch:
avatar
By snickersinatwix
12th Jun 2020 12:17

Sadly I don't thinks CAs are available as it does not qualify as plant and machinery, and the expenditure was just before the new building structures relief was introduced.

Thanks (0)
Replying to snickersinatwix:
RLI
By lionofludesch
12th Jun 2020 13:58
Thanks (0)
Replying to lionofludesch:
avatar
By snickersinatwix
12th Jun 2020 16:06

yes I did see that, but the case which won against HMRC was astroturf, which I think is quite different to clay, which is most definitely embedded into the floor

Thanks (0)
Replying to snickersinatwix:
RLI
By lionofludesch
12th Jun 2020 16:58

Does the clay have a function ?

Thanks (0)
Replying to lionofludesch:
Psycho
By Wilson Philips
12th Jun 2020 17:08

Yes - it turns your tennis whites red/brown.

Thanks (2)
Replying to Wilson Philips:
RLI
By lionofludesch
12th Jun 2020 17:20

It doesn't do that to mine.

Thanks (0)
Replying to snickersinatwix:
avatar
By Tax Dragon
12th Jun 2020 17:37

snickersinatwix wrote:

yes I did see that, but the case which won against HMRC was astroturf, which I think is quite different to clay, which is most definitely embedded into the floor

It 'feels' capital to me too - especially if it's outdoor courts (although your use of the word "floor" makes it sound more indoorsy). Feelings are not reliable though, when it comes to tax law.

Clay can have a function (beyond stopping players fall through the floor). I'd say the clay in a sumo wrestling ring was plant, for example (though I may be wrong). But that's not the only test. Doesn't the 'premises' test come first?

Either take advice, as suggested, or read the cases themselves (not just HMRC's synopses of them).

Thanks (1)
Replying to Tax Dragon:
avatar
By snickersinatwix
15th Jun 2020 10:46

they are outdoor courts

Thanks (0)
avatar
By frankfx
12th Jun 2020 12:38

Curious: why is the tax outcome and cash flow implication being discussed now?

I would have thought that given the amounts involved the tax cost or saving may have been critical to the decision to go clay.

It may be worth a chat with the LTA re tax treatment , many clubs may have sought guidance .

Of course, this is not a members club? !

Thanks (0)
Replying to frankfx:
avatar
By snickersinatwix
12th Jun 2020 12:46

we did not act for them when the work was done. I think they just assumed it would be deductible.

Thanks (0)
avatar
By Ben McLintock
12th Jun 2020 19:39

Nothing beats a good old capital v revenue question, especially given that next week will be dominated by flexible furlough...

Have a good weekend all.

Thanks (1)
avatar
By whitevanman
14th Jun 2020 00:01

As usual, I am somewhat late to the discussion.
I would agree the majority view that the expenditure is capital. I don't think Pratt is of any assistance, whether or not the previous surface was dug up / used as hardcore.
The OP has stated that the clay surface is superior and it is clearly not a like-for-like replacement of the tarmac surface (which is still available). So, an improvement and therefore capital.
I also think it is a non-runner for capital allowances and don't think the Anchor case is of any real help.
If I remember correctly, that case depended on a rather unusual finding of fact by the SC to the effect that the carpet (astroturf) was actually separate from the underlying substrate and was itself an item of plant. As a finding of fact, it was determinative and could not be (was not) overturned on appeal.
The Lingfield case was, IMHO, a decision based on less controversial findings and is a better guide to the true nature of this type of asset. The clay cannot be separated from the substrate and it is part of the setting. It is not a separate (or indeed separable) part and not an item of plant.

Thanks (0)
avatar
By [email protected]
15th Jun 2020 10:01

The special floor of a squash court has been determined as plant, so I can't see any reason why the clay floor of a tennis court cannot be accepted as plant either.CA22130.

Thanks (0)
Replying to [email protected]:
avatar
By Tax Dragon
15th Jun 2020 10:32

Because the two are not comparable. A squash court "special" floor is a structure built upon the ground.

Let me put it to you this way.... if it was widely accepted that clay courts were plant, you'd have found that as an example in the manuals, rather than doing what you have done - finding something that isn't a clay court and pretending it's the same.

I don't know the answer for sure, and it might be with talking with a specialist, but I tend to agree with whitevanman's analysis.

Thanks (2)
Replying to Tax Dragon:
Psycho
By Wilson Philips
15th Jun 2020 10:51

Another way of looking at it. In reverse. Let's say a clay court had been replaced with a tarmac court (because it is thought to be superior). I wonder how many would be claiming that tarmac is plant?

Thanks (0)
Replying to Wilson Philips:
avatar
By Tax Dragon
15th Jun 2020 11:22

Dig it up and turf it. Now you're talking.

Thanks (0)
By rbusfield
15th Jun 2020 11:25

You say that the surface is superior, is that because the surface will not need repairing every 15 years going forward? Or does it make it better to play on?

There are some arguments in favour of repair. I assume they have not increased the dimensions of the courts and they look the same, except for the colour and the fence around is the same.

Some cases look at whether it is a renewal or replacement of defective parts of the ‘entirety’, (which would be a repair), or alternatively a renewal or replacement of substantially the whole property, (which would be an improvement). HMRC refer to the case of Conn v Robins Bros Ltd [1966] 43TC266 in BIM and it may be helpful.‘No doubt in the course of carrying out these works certain structural alterations were made, as one would expect with any extensive repair of a building over 400 years old, when repairs were being carried out at a time when building techniques have completely altered. But the fact that there were alterations in the structural details of the building does not seem to me to be a good ground for proceeding upon the basis that the work produced something new. On the contrary, I think it is implicit in the Commissioners’ finding that the result of this work was not to produce something new but to repair something which had previously existed. Upon that basis it seems to me that there is no ground for regarding this expenditure as a capital expenditure.’

The judge looked at circumstances which would lead to the conclusion that the expenditure was capital. The expenditure was not associated with the acquisition of the premises. If the work had not been carried out it would have been impossible to carry on the business. The work was incurred to allow the company to continue to earn profits by putting its existing asset into a proper state of repair. There was no evidence that the asset when acquired by the company was not in a fit state and that the cost of acquisition reflected it being in an unusable state (see BIM35450).
The key was that ‘the result of this work was not to produce something new but to repair something which had previously existed’. The character of the asset (see BIM35460) was unchanged by the work.

Rebecca Busfield (Watt Busfield Tax Investigations)

Thanks (2)
avatar
By alanray
15th Jun 2020 11:38

New court construction process will have totally destroyed the tarmac court plus sub base and therefore the new clay court is a new capital item in the accounts. No capital allowances will apply.

Unless of couse it isn't a real Continental clay court but an artificial clay court which is in effect a "stability mat" with a ceramic infill rather like sand. This is very akin to an artificial grass court sand filled mat and could have been laid on top of the tarmac.

Need to be clear on exactly what the construction is before determining tax treatment.

In any event clay or artificial clay are infinitely better to play on than tarmac so club members will be happy, especially the oldies.

Thanks (0)
avatar
By Brenda Bonathan
15th Jun 2020 11:47

Why not phone HMRC & ask to speak to a inspector, put the case to him or her & they will tell you repair or capital

Thanks (0)
Replying to Brenda Bonathan:
RLI
By lionofludesch
15th Jun 2020 14:08

Brenda Bonathan wrote:

Why not phone HMRC & ask to speak to a inspector, put the case to him or her ; they will tell you repair or capital

Can you rely on that being correct ?

We've never been able to do that in the recent past .......

Thanks (0)
Pile of Stones
By Beach Accountancy
15th Jun 2020 13:57

Is the club a CASC? In which case the tax element may be irrelevant.

Thanks (0)
Share this content

Related posts