When it comes to determining repairs for tax purposes, words matter but substance and context matter more.
The recent case of Steadfast Manufacturing & Storage Limited  UKFTT 286 (TC) concerns a challenge by HM Revenue & Customs (“HMRC”) on the companies claim for £74,000 of yard repairs on its factory site. The entire yard area of 1,675 m2 had its patchy and uneven surface removed and replaced with reinforced concrete along with a new small drainage channel for £740.
HMRC contended that the size and importance of the yard to the factory site meant that, although the work done related only to part of the whole asset, the work undertaken could be regarded as being of sufficient scale and importance to be capital expenditure in accordance with Phillips v Whieldon Sanitary Potteries Ltd ((1952) 33 TC 213). They also cited the wording of the builder’s invoice “provide new car park and wagon turning area”.
On the facts, the tax tribunal found that the work done did not create a new asset but merely restored the car park back to its original state. The companies appeal was allowed.
Given other decisions for similar works (e.g. G Pratt & Sons TC01269) and the specific guidance contained in HMRC Tax Manuals for this type of work, it is a rather odd case for HMRC to take to tax tribunal.
The function, load capacity and area of the yard remained the same both before and after the works. If there was an improvement it was minor and just because the work reduced the need for repairs in the future that did not make the expenditure capital.
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