Case: FRF (South Wales) Limited v The Commissioners for His Majesty’s Revenue and Customs ('HMRC').
Court: First-Tier Tribunal Tax Chamber
Citation: [2024] UKFTT 001145 (TC)
Date: 18 December 2024
Subject: Business Premises Renovation Allowances (BPRA) under Part 3A of the Capital Allowances Act 2001 (“CAA”)
Issue: Whether the extensive renovation of a disused warehouse into a Toyota car showroom qualifies as a “conversion” under s.360B CAA, thus entitling the appellant to BPRA.
Decision: Appeal allowed
Key Findings and Arguments
This is a First-Tier Tribunal ('FTT') Tax Chamber case concerning Business Premises Renovation Allowances (BPRA) under Part 3A of the Capital Allowances Act ('CAA') 2001. FRF (South Wales) Limited appealed HMRC’s denial of allowances claimed for converting a disused MFI warehouse into a Toyota showroom. The central issue was whether the extensive renovations constituted a "conversion" or "renovation" compared to a rebuild.
FTT allowed the appeal, finding sufficient continuity between the original warehouse and the showroom to qualify for allowances. The decision hinges on the statutory interpretation of "conversion" and the balance between substantial alterations and retained identity.
Although BPRA were withdrawn from April 2017 (the initial claim was made in 2016) the case reinforces a wide meaning of "conversion" for the purposes of capital allowances and could provide a useful reference point in related tax disputes.
Appellant (FRF (South Wales) Limited)
Key Arguments for Conversion:
Argued that the works constituted a "conversion" due to the significant structural continuity between the warehouse and the showroom.
Emphasized the retention of key structural elements:
Six of the original ten steel portal frames
Original foundations and floor slab beneath the retained frames
Below ground drainage
Claimed the replacement of cladding and changes to internal configuration are consistent with the concept of "conversion" and reflect the commercial reality of bringing a derelict building back into business use.
Highlighted the policy objective of the BPRA legislation to encourage the conversion of disused properties for business use, arguing that their project aligns with this objective.
Respondent (HMRC)
Key Arguments against Conversion:
Contended that the extent of the works exceeded the scope of "conversion" or "renovation," effectively creating a new building.
Pointed to the significant changes:
Demolition of 4 out of 9 bays and a 40% reduction in footprint
Replacement of all internal services, roof, and wall cladding
Installation of new showroom glazing and vehicle roller shutter doors
Argued that the transformation resulted in a loss of the warehouse's original identity, failing the "continuity of existence" test established in case law.
Tribunal Decision on Conversion
The Tribunal ruled in favour of the appellant, concluding that the works constituted a “conversion” for the following reasons:
Retention of structural identity: The retention of significant structural elements, including portal frames, foundations, and below-ground drainage, ensured a sufficient continuity of identity between the warehouse and the showroom.
Purpose of the Legislation: The purpose of BPRA is to encourage the return of disused business premises to active use. The Tribunal found it consistent with this purpose to allow for substantial alterations, including changes to internal arrangements, to reflect the new building’s intended use.
No Prohibition on Size Reduction: The legislation explicitly excludes allowances for building extensions but remains silent on size reductions, suggesting no legislative intent to disqualify projects involving such reductions.
Overall Impression: While acknowledging the substantial alterations, the Tribunal’s overall impression from the photographic evidence was that the project constituted a conversion rather than a complete demolition and rebuild.
Marchday Holdings Ltd [1997] STC 272: "The touchstone for the application of Note (1A)(a) is whether a reasonable person, apprised of all the facts, would conclude that the building which existed before the works started still retains its identity — in that sense, still exists — at their completion, though it may have been transformed by conversion, etc."
London Luton BPRA Property Fund v HMRC [2023] EWCA Civ 362: "... The purpose of the legislation is plainly to encourage the conversion and renovation of existing business premises to facilitate their return to business use..."
Conclusion
This decision reinforces the broad scope of "conversion" under the BPRA legislation. It clarifies that substantial alterations, including changes to size and internal configuration, can be permissible as long as sufficient continuity of identity is maintained between the original and renovated buildings.
The judgment also emphasised the importance of considering the policy objectives of the legislation and the commercial realities of bringing disused premises back into business use.