Following on from G Pratt & Sons and the Carnsmill Caravan Park cases (see eNews May/June) the First-tier Tribunal agreed with the taxpayer in Hopegar Properties Limited [2013] TC 02734 that the costs of resurfacing an estate road and cable works were revenue costs despite the taxpayer undertaking capital works at the same time.

The taxpayer’s principle activity was buying, developing, managing and letting land and buildings.  During the accounting period, the company carried out works on the land and buildings on its industrial estate.  The works related to the main entrance road which was in need of repair and widening.  Footpaths were beginning to break up and the under laid fibre optic cables needed to be re-laid.  As a result of the road widening, the necessary landscaping needed to comply with local authority and safety requirements.  The existing car park was re-sited, enlarged and repaired.

HMRC visited the site and concluded that the expenditure in respect of the road works and cable works were capital.

As with the above cases, the Courts used the concept of entirety to distinguish between revenue repairs and capital expenditure and concluded that as the entirety was not being replaced, the expenditure was likely to be a repair.  Further, the individual items of expenditure should be looked at rather than the scheme of works as a whole and the concept of ‘notional repairs’ did not apply on the facts.

The cost of repair work on the footpath and car park were clearly distinguishable from the works which could be treated as capital expenditure, which the taxpayer had identified, with the capital elements relating to the widening, new railings, bollards and painting.

This case further illustrates the tough stance taken by HMRC in trying to maximise disallowable capital costs, which is not currently being supported by the courts.

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