A recent Tribunal case focused on the question as to whether legal fees were deductible by the taxpayer company.

In 1991 the company had been granted outline planning permission for an open-air market. A further planning application was approved in 1994 but with trading limited to weekends. By 1996, the company was also operating on bank holidays and in the days leading upto Xmas. The Council invited the company to seek further permission to regularise the position.

In 1997 the Council granted permission for the company to trade on ten weekdays a year, as well as weekends, but the company breached these terms by trading every Wednesday in 2001. In 2003 the council issued an enforcement notice, against which the company appealed. The company also appealed the decision to the High Court and applied for permission to go on to the Court of Appeal; this was not allowed. 

The company incurred professional fees in connection with its planning appeals and claimed a total of almost £180,000 as a deduction for corporation tax purposes. HMRC refused the claim on the basis that it was capital expenditure. The company appealed.

The First-tier Tribunal said that the fees were essentially one-off fees for single pieces of professional advice. The expenditure went beyond maintaining an asset, but was made to try to alter the state of an existing asset. The fees should therefore be treated as capital expenditure. The company was therefore not entitled to any tax relief for the costs incurred.