In FRF (South Wales) Limited v HMRC [2024] TC09386, the First Tier Tribunal (FTT) found that a company could claim Business Premises Renovation Allowances when converting a retail warehouse into a car showroom. Although substantial alterations were undertaken, there had been a continuity of the building’s identity.
Between January and September 2016, FRF (South Wales) Limited (FRF) carried out building works on a disused retail warehouse in Carmarthen, turning it into a Toyota car showroom and workshop.
- The work cost £1.7 million, with Business Premises Renovation Allowances (BPRAs) being claimed on £1.4 million.
- BPRAs were a 100% capital allowance available between 11 April 2007 and April 2017 on the conversion or renovation of unused qualifying business premises in a disadvantaged area.
- Following an enquiry into FRF’s Corporation Tax return, HMRC issued a Closure notice in June 2021 denying a deduction for all BPRAs claimed, on the basis that the expenditure was not incurred on the conversion or renovation of the warehouse.
- Due to the extent of the work undertaken, HMRC’s view was that the warehouse did not survive the works and effectively ceased to exist, with the car showroom being a new building.
- FRF Appealed to the First Tier Tribunal (FTT).
The work undertaken by FRF reduced the area of the warehouse by around 43%, with approximately 57% of the footprint of the former warehouse being incorporated into the new showroom. There were three distinct steps undertaken in the works:
- Step 1: enabling works, involving substantial demolition. The existing cladding and roofing were removed and the warehouse was stripped back to its skeletal portal frame.
- Step 2: destruction/demolition of four of the nine structural bays (two on each end of the building) and removal of gable end steelwork, reducing the length of the warehouse.
- Step 3: new secondary steelworks were added to the portal frame, including the construction of new gable ends.
- New exterior walls, cladding and windows were constructed and the building was completely re-roofed.
- New internal walls and features were installed, including booths made from concrete blocks to facilitate the servicing of vehicles.
The FTT found that:
- The terms ‘conversion’ and ‘renovation’ are not defined in the legislation.
- ‘Conversion’ is wider in scope and most relevant to the works undertaken by FRF.
- The ordinary meaning of the term was the starting point.
- A conversion requires a continuity of identity between the old building and the new building, although the form of that building might change. There must be some retention of identity.
- The works undertaken by FRF retained sufficient continuity of identity between the warehouse and the car showroom to amount to a conversion. The warehouse continued to exist although it was substantially transformed.
- Substantial elements of the framework of the building, the underlying foundations, and below-ground drainage were retained and the pitch of the roof remained unchanged.
- Cladding as the external surface of both the warehouse and car showroom demonstrated the continuing identity of the old building.
- As a matter of principle, a conversion can include alterations which reflect a change in the nature of the activities for which the building is intended.
- Substantial alterations are capable of being a conversion when construed purposively in the context of the BPRA legislation, which aims to facilitate the return of existing business premises to business use.
- The transformation of an old warehouse into a new car showroom was the paradigm example of the sort of project to which the legislation was intended to apply.
The appeal was allowed.
Useful guides on this topic
Business Premises Renovation Allowance
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Structures & Buildings Allowance (SBA)
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What expenditure qualifies for plant & machinery allowances?
What is plant and machinery? What expenditure qualifies as plant and machinery? What is treated as part of a building?
Capital Allowances: What's new 2024-25
What's new in Capital Allowances for 2024-25? A summary of the different types of capital allowances currently available to UK businesses.
What is an integral feature?
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What is a fixture?
What are fixtures for capital allowance purposes? What are the consequences of something being a fixture?
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