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Repairs upheld against capital challenge

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Works carried out to a site yard were a tax-deductible revenue cost and not, as HMRC claimed, a capital cost that improved a fixed asset for which no capital allowances were available.

11th Sep 2020
Tax Writer
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Steadfast Manufacturing and Storage Limited (Steadfast) leased a factory and yard. Before and after the works in question were carried out, the whole of the yard was used to unload articulated lorries, move those lorries, and provide trailer storage.

Before the works were undertaken, the yard’s surface was in poor condition. Certain areas had become unstable and were unsuitable for use by forklift trucks, although they were used when necessary to turn the trailers for articulated lorries.

The works carried out

The yard had previously been repaired twice a year by patching with gravel. However, as this patching became less effective it gave rise to health and safety concerns and the taxpayer concluded that the yard should be resurfaced.

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Replies (7)

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By thomas34
11th Sep 2020 14:07

More public money being thrown at a hopeless cause. There's nothing in the evidence that remotely suggests a capital element. The giveaway is in the last bullet point of HMRC's argument - "in the alternative". This demonstrates that the preceding bullet points were vexatious.

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By Mr Hankey
12th Sep 2020 17:11

I agree, hopeless cause, it was a yard before and it was a yard afterwards.

HMRC's arguments do seem rather weak, especially the first point alluding to it being sufficiently important. My computer mouse is sufficiently important, but that doesn't mean it should be capitalised.

Their second point "no need for further repairs for potentially 20 years" - since when has that been a condition for capitalising something?

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Replying to Mr Hankey:
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By mdoodney
14th Sep 2020 10:41

I agree and this was my case. Now the appeal period is passed I must say I couldn't understand why they would litigate this small case (still don't really) and that 'no future repairs' argument didn't make sense to me either. I can't see that it's for HMRC to effectively say to a taxpayer "you shouldn't repair something properly when you can bodge it annually"- apply that logic to, say, the braking system of an HGV and see how far that gets you!

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By nicdell
15th Sep 2020 11:42

Oh dear! How far HMRC's tax expertise has fallen that they could even consider that they might win this case. It matters, of course, that the experts are so poorly equipped to do their job but it matters even more that they are able so wantonly to waste the time and money of taxpayers, their agents and the Tribunal. At least someone within HMRC had sufficient grasp to abandon any thoughts of appealing.
Somebody should have their knuckles rapped over this one. It's not even a difficult point - and certainly not one which is arguable.

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By whitevanman
15th Sep 2020 16:45

Afraid I don't agree the views put forward (so far) about the relative merits/strengths of the case. I certainly don't think it was clear-cut. But I don't really want to comment on such matters.
I would however like to address 2 different points.
Firstly, hmrc do not take cases to tribunal without a purpose and the officer who carried out the enquiry probably had little input into that decision. Given the fairly small amount involved, I suspect that it was felt that the facts of the case were such that a decision of the tribunal might cast light on the boundary between alteration (capital) and repairs (revenue).
In the context of the foregoing, it is unfortunate that the decision is so brief. It adds nothing to the sum total of knowledge / understanding in this area.
Secondly, the judgement does highlight another feature that is increasingly familiar, that of the tribunal simply accepting what someone says (in this case the director) without looking for evidence. Worryingly, the judge comments about what was the original state and yet no-one who was party to the appeal could speak with any authority on that point. The case makes clear that the property was purchased in 2004 and that the last time any re-surfacing etc would have been carried out, pre-dated that. All the director was capable of attesting to was the state etc when he bought the property.
This type of matter points to a decline in the standards of HMRC but also the tribunal, who should be concerned to get all the facts before making a decision (and clearly setting out those facts in the decision).
One final comment concerning the fact that HMRC has not appealed the decision, this is not a sign of any "improvement" (as seems to be suggested). It is simply that the tribunal decision is (well, should be) one of fact. In that context, no appeal would have been possible (or would have been bound to fail).

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Replying to whitevanman:
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By nicdell
17th Sep 2020 14:41

I should have thought that the principles established in Conn v Robins Brothers, as summarised at BIM35480, would have led HMRC to the same conclusion as the Tribunal.

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Replying to nicdell:
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By whitevanman
17th Sep 2020 20:36

I can see many differences, even with the fairly limited facts etc set out in the case and I don't really think it worthwhile setting out the many, potential issues. I simply re-iterate what I said before. HMRC don't take such small cases unless there is a good reason and whatever they may have hoped for, they clearly failed and the case itself has added nothing to the sum total of knowledge (which is probably why you and others seem convinced it had no chance of "success").

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