Talking with the taxman about
Burnley
Brown (HM Inspector of Taxes) v Burnley
Football and Athletic Co Ltd, High Court of Justice, March 1980
It's sadly all too rare for my job and
affliction to meet head on, but our new North Stand reminded me of the Clarets’ vain
attempt to put one over on my ex-employers. I confess to once being a district inspector
with the Inland Revenue. If you are concerned about self-assessment, this article will
help you understand how you may be able to get tax relief on any expenditure you may incur
on building a football stand.
Cast your mind back to a time when it cost you
£1.20 to stand on the terraces and £2.90 to sit and watch first division football at
Turf Moor, and the 'Sound of Music' was still in the album charts. The club's architect A
D Jenkins reports that the stanchions in the Brunshaw Road Stand are badly corroded and
unsafe following 57 years of service. The stand is demolished towards the end of 1969 and
we finish 14th in Division One. Relegation follows in 1970/71 and it’s not until the
end of 1974 that the Brunshaw Road Stand is replaced at a cost of £209,365 - or 2/3 of
Martin Dobson.
You can skip the next bit if you have no
interest in accounting practice or the tax treatment of capital expenditure.
Business expenditure is categorised as
‘revenue' or 'capital'. Broadly speaking, you get tax relief for all your revenue
expenses in the year you spend the money. Revenue expenses have no long term benefit for
the business and include things like players' wages and the cost of pork pies. Capital
expenditure, on the other hand, will be for the long-term benefit of the club and will
include things like players' cars and, you would think, new stands. The distinction is
important because broadly you either get no tax relief at all for capital expenditure or
you get a 25% allowance each year on a reducing balance if you have bought plant or
machinery.
…Welcome back.
Now it may seem pretty obvious that the
£209,365 is spent for the long-term benefit of the club and is capital expenditure. Enter
smart tax lawyers and accountants:
'No this is clearly not a new asset,
it’s simply a repair to the ground… Don’t like that?… Well if
it’s not a repair to the ground then the stand is plant and we get capital
allowances.’
Mr Brown HMIT is clearly unimpressed and in 1978
both sides put their point of view to the Special Commissioners in London for a
ruling… and the Clarets get their fifth away win of the season!
‘On the basis that the cost of replacing
the stand was expenditure on repairs of premises and added nothing new to the club’s
premises and produced no substantial improvement to the functioning of the stadium, the
club’s appeal succeeds…’
Joy is short lived as the Revenue then appeal
and the case comes before Mr Justice Vinelott in the spring of 1980. So was the new stand
a repair? Sorry boys, no way:
‘The premises occupied by the club
comprised a number of distinct structures. It was not designed, far less built in
accordance with a single plan… Each separate part had a distinct function. No part
except the pitch was necessary to the performance of the club’s central
activity… In my judgement the erection of the stand was not a repair of any larger
entity.’
Fair enough but was it a piece of machinery?
Very short shrift on that one:
‘The stand is not plant functioning in
the actual processes that constitute the trade. The matches take place and the spectators
come to watch within rather than by means of the stadium. Appeal dismissed with costs to
the Revenue.’
We cut and run at this point, leaving me
pondering what profits we could possibly have needed to shelter at this point in our
history.
I nearly forgot. The reported case contains an
explanation of our parlous times which must be unique in tax case law. Director Dr R D
lven testifies, presumably on oath, that the period after demolition was the worst ever in
his experience. Players…
'In effect lost their bearings when a green
hoarding was erected down the side of the playing field where the stand had been. It was
during this period that the team was relegated…’
And we all thought we went down because we were
crap - all along they had simply lost their bearings.
The tax world is eagerly awaiting our next foray
into the courts. I'll keep you posted.
Chris Chadburn
June-July 1996
