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Famer tells taxman to get off his drive

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30th Sep 2011
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Heard the one about a farmer, a driveway and capital expenditure? All three featured in an intriguing tax tribunal case which has lessons for all types of business. Nick Huber reports

G Pratt & Sons v HMRC (TCO 1269) centred on the tax treatment of a farmer’s drive which was dug up and resurfaced with new tarmac at a cost of £23,300. The farmer argued that it was a repair, meaning that it was an ongoing cost and revenue repairs could be claimed immediately.

HMRC argued that the effect of concreting the drive was to provide an entirely new and better surface than before. This work had improved the business and should therefore be treated as a capital expenditure.

The farmer won the case by showing that the work to the drive involved adding new surface to old tarmac, which did not constitute an additional capital improvement to the farm. The tribunal ruled, “There was not a renewal of the entirety of the drive but a repair to an existing asset.”

Analysing the case in the September episode of TAXtv, presenter Giles Mooney commented, “The question of whether expense spend, normally on property is a repair, a renewal, or is a capital expenditure is asked a lot.

“Whenever someone asks me about this I say that there are two questions to look at. First of all, have you enhanced your ability to do what you do? Secondly does it appear to be a complete replacement of a particular asset. The [farmer] appears to have broken up the old drive and used as the hard core for the new drive.”

Further analysis is available in a download review of the case from Lovell Consulting, which advises that no deduction is allowed in calculating trading profits for items of a capital nature. A deduction from trading profits is available for repairs whereas the replacement of the “entirety” of an asset is deemed to be a capital item, Lovell adds.

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By johnjenkins
04th Oct 2011 16:47

I had a case like this quite a few years ago

and won. The inspector argued that the value, rather than the substance of the repair put it into capital.

A carpenter will spend thousands on replacing drills, routers etc. some heavy duty items are very expensive.

The argument (in my view) has to be whether the spend is an improvement on the original item.

Although you then come up against upgrades etc. What if the drive was made out of titanium with the old drive used as ballast?

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By ianthetaxman
10th Oct 2011 11:26

road to no-where...

I've also had a similar situation where the inspector challenged a "repair" to an access/service road by a client due to the level of the expense.  We ended up inviting him to come and see the stretch of road that had been repaired, and when he did, he agreed to the deduction.

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By hiu612
10th Oct 2011 11:37

Me too

I had an almost identical situation with a farmer and a driveway, and also convinced the inspector that we were dealing with a repair and not capital expenditure.

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By hiu612
10th Oct 2011 11:37

Me too

I had an almost identical situation with a farmer and a driveway, and also convinced the inspector that we were dealing with a repair and not capital expenditure.

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By mydoghasfleas
10th Oct 2011 12:35

Why was it at the Tribunal

I think many of us have had the experience.

What concerns me is how this finished up at a Tribunal hearing and what the cost was.  The tax at stake would not have been £10,000.00. 

How much has HMRC spent taking it and how much additional cost is there for a partnership?  16 years ago, we had a represented case at the Specials - cost about £35,000 for two days of hearings.  Here at least the partnership did not have Counsel representing but when you take into account the cost of the accountant representing the appellant has the partnership benefited from winning?

I would be disappointed if this was taken only on a point of principle.  If the costs have exceeded the amount in issue, was it a victory worth having?

You have to question if the Inspector took advice before pressing ahead with it; whilst it seems to have added little to law a recent decision always looks good in an argument.

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By aiwalters
10th Oct 2011 13:17

implied right of access

I actually thought this article was going to be about implied right of access, as per the post here: https://www.accountingweb.co.uk/group-thread/do-we-care-about-tv-anymore

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By aiwalters
10th Oct 2011 13:17

implied right of access

I actually thought this article was going to be about implied right of access, as per the post here: https://www.accountingweb.co.uk/group-thread/do-we-care-about-tv-anymore

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By samuelspaniel
10th Oct 2011 16:22

Why was it at tribunal

I also have come across similar situations where an Inspector has taken a view which is quite unjustified and then won't back down.  In some cases it was obvious that the Inspector knew that the taxpayer could not afford to argue the case and so would accept his view.  To me this is totally wrong and should be fought with vigour and if that requires a visit to the tribunal then so be it.  The costs attached to such a move are exactly what the Revenue play on - bearing in mind that they can spends thousands, lose a case and no-one suggesting that their hands should be slapped.  Principle has a price and if the Revenue was to understand that taxpayer's will fight them all the way for that principle they might just sit back and reconsider.

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Replying to User deleted:
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By leon0001
12th Oct 2011 14:36

Review

samuelspaniel wrote:

I also have come across similar situations where an Inspector has taken a view which is quite unjustified and then won't back down.  In some cases it was obvious that the Inspector knew that the taxpayer could not afford to argue the case and so would accept his view.  To me this is totally wrong and should be fought with vigour and if that requires a visit to the tribunal then so be it.  The costs attached to such a move are exactly what the Revenue play on - bearing in mind that they can spends thousands, lose a case and no-one suggesting that their hands should be slapped.  Principle has a price and if the Revenue was to understand that taxpayer's will fight them all the way for that principle they might just sit back and reconsider.

 

Try applying for a review first - not much cost involved and you still retain the right to go to tribunal if unhappy with result.

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The Business Growth Secret
By anndartnall
11th Oct 2011 13:02

Dear Mydoghasfleas

If your client has (good) fee protection against Investigations & Enquiries, the issue of not going to Court because of cost shouldn't arise.

I drop the hint that my client has this protection which is why I will be doing all the interaction, at an early stage so he/she can take the hint that I won't be backing down until the money runs out (min £75k). Strangely, none of my clients have had an investigation for over 4 years........

Ann Dartnall

Abacus 161 Ltd

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Replying to Glennzy:
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By samuelspaniel
11th Oct 2011 17:26

Fee Protection and Attitude

Strange that, wouldn't you say?

 

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