Repair – capital or revenue expense?

16 September 2013

Trying to establish whether a repair is an allowable trading expense or a capital deduction can be a minefield. It is a complex and grey area and causes many problems.

HMRC state that a repair means the restoration of an asset by replacing subsidiary parts of the whole asset. If there is a significant improvement of the asset, beyond its original condition this will be capital expenditure.

The recent case of Cairnsmill Caravan Park V HMRC has proven that each case has to be individually looked at according to the legislation.


  • A family business claimed £89,210 for the cost of resurfacing a grassed area with hard-core materials.
  • HMRC challenged the case arguing that it was an improvement and as such, a capital expense and not deductible.

Appellants arguments

  • The whole park consists of 51 acres (the entirety) and the area in question covers 3 acres.
  • The grass surface had deteriorated over a period of 50 years, and to restore the grass would have required the area to be left vacant for 2 holiday seasons to allow the grass to become re-stabilised. Instead the grass was replaced with a hard-core surface at a relatively cheap cost.
  • The work was done outside the holiday season and while the pattern of business was maintained, it did not improve.
  • The surface now resembles a car park and is much less aesthetically and environmentally pleasing.
  • Annual maintenance costs have marginally increased but the erection of caravan awnings on the hard-core surface has been problematic.
  • It is less suitable for children and there has been complaints from customers as a result of the change of surface.
  • Two valuations were produced, one about one year before and the other three and a half years later and concluded that the value was not materially affected by the resurfacing works.

HMRC arguments

  • The resurfacing was not a “like for like” replacement.
  • There was greater durability and climatic resistance.
  • The pitch generated 25% of the business income which was a large amount of the entirety (based on income levels and not surface area)
  • The surface had to be excavated, replaced by entirely difference material and surfaced with gravel. In effect a new asset had been acquired.


  • The tribunal found in favour of the taxpayer and the cost was allowed as a trading expense.
  • This was due to the resurfaced area only being a very small part of the whole Caravan Park;
  • The surface is not as suitable for children and has caused customer complaints;
  • There is no suggestion of an improvement or resulting enhanced value


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