A decision of the First-tier Tribunal expands the boundaries of a claim for “business premises renovation allowances” (BPRA).
The case is: London Luton Hotel BPRA Property Fund LLP v. HMRC
The BPRA regime was introduced to help regenerate empty commercial properties in disadvantaged areas, by providing a 100% initial allowance or a 25% straight-line writing down allowance for renovation expenditures connected with projects bringing disused commercial properties back into commercial use, within certain designated areas of the country. The rules under BPRA were replaced in April 2017.
In this case, there was a project for redeveloping a disused flight training centre near Luton Airport into a hotel in 2011-2012. The total paid to the developer was approximately £12.5 million, and the taxpayer claimed application of the BPRA rules on the full cost. HM Revenue & Customs (HMRC), however, disallowed approximately £5.3 million (the disallowed amount included amounts related to interest, capital, and certain promoter and legal fees and investment advisor fees, and franchise costs).
The tribunal’s discussion in its decision considered the wording of CAA2001 s.360B that defines qualifying expenditure as an “expenditure incurred … on, or in connection with the conversion, renovation or repair of a qualifying building”. The phrase “expenditure incurred on the provision of plant and machinery” has long been familiar within the capital allowances rules, and the boundaries of this term were determined in Ben-Odeco Limited v Powlson [52TC459]. However, the tribunal held that the words “in connection with” broaden the category of expenditure eligible for BPRA.
Accordingly, the tribunal allowed the interest amount, advisor fees, promotor fees, legal fees relating to the property conversion and some of the franchise costs. Under principles established in Ben-Odeco, none of these costs would be eligible for capital allowances.
Given the result of the tribunal’s decision, some tax professionals expect HMRC to appeal the decision, but in the meantime, any businesses that made a BPRA claim in the past, or that might be able to make a retrospective claim, need to consider whether they have claimed the full extent of the allowable expenditure.
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