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Repairs Case - Premises Refurbishment

Repairs Tax Case Review

Refurbishment of Showroom and Workshop

Moonlight Textiles Limited V HMRC Commissioners [2010] UKFTT 500 (TC)

Tribunal Release Date: 15th October 2010


The taxpayer refurbished a showroom and workshop.  It unsuccessfully claimed a tax deduction for the cost of purported ‘repairs’.


The taxpayer manufactured and sold curtains and accessories.  It occupied a 2-storey building with a showroom and warehouse on the ground floor, plus a workshop, offices, boardroom and kitchen on the first floor.  It wanted to shift its business from selling ready-made curtains to making and installing bespoke curtains and blinds.


The company spent about £68,000 carrying out work to its premises.  There was no overall increase in the size of the premises.  However, the works included a complete replacement of the roof; major alterations; redecoration and improvement of the kitchen; a reconfiguration of the stairs; removal of a wall; extension of the floor; installation of new steps, a false ceiling and disabled access.  The shift in the business reduced the need to hold stocks of materials, and the works resulted in substantial alterations and improvements to the layout of the premises with a larger refurbished showroom and smaller warehouse.


The taxpayer claimed a ‘revenue’ tax deduction for purported repairs and professional fees of about £56,000 (83% of the expenditure).  It capitalised the balance of around £11,000 and claimed plant and machinery capital allowances for this.  HM Revenue & Customs (HMRC’) accepted that the ‘entirety’ had not been replaced (see ‘Relevant law/ practice’ below).  It agreed that the circa £7,000 roof works and about £1,500 of the kitchen refurbishment costs were repairs that could be treated as ‘revenue’ expenditure and allowed as a tax deduction from profits.  However, HMRC regarded the rest of the expenditure as relating to a ‘capital’ scheme of alterations and improvement, which should be disallowed as a deduction from profits, although about £13,000 of this (19% of the total expenditure) qualified for plant and machinery capital allowances.

Relevant Law/ Practice

A 100% tax deduction is available for revenue expenditure incurred on repairs and maintenance works, as long as those costs have been charged immediately to the profit and loss account.  In HMRC's view, where revenue expenditure has been capitalised or ‘deferred’ (ie, recorded as a fixed asset on the balance sheet) then a tax deduction is only available when that expenditure is expensed through (ie, charged to) the profit and loss account. Therefore, the tax deduction follows the depreciation rate in the accounts.


Expenditure is not regarded as revenue where substantially the whole of the ‘entirety’ is replaced (rather than renewing subsidiary parts), or where there is an improvement or enhancement of the asset and its function (unless merely substituted with the ‘nearest modern equivalent’).

Tax Tribunal Decision

The first-tier tribunal found in favour of HMRC.  It held that the company had chosen to adapt its premises to its needs and there had been a significant improvement that had changed the character of the building as a whole.  Therefore, the expenditure was ‘capital’ and not an allowable ’revenue’ tax deduction from profits.

Our View

There appears to have been no sound basis in the taxpayer’s claim that the majority of its building works were tax-deductible repairs.  However, in the well known words of Lord Upjohn “…no part of our law of taxation presents such almost insoluble conundrums as the decision whether a receipt or outgoing is capital or income [ie, revenue] for tax purposes” (Regent Oil Co Ltd v Strick (1965) 43 TC 1).  Therefore, it is easy to sympathise, and little surprise that the taxpayer got into difficulty without, it would appear, having first consulted a specialist adviser like The Capital Allowances Partnership Limited.


View and save Tax Case Review - Moonlight Textiles v HMRC Commissioners as a PDF file.

Tags for this article: tax case, repairs, refurbishment, showroom, workshop

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