Architects fees: can they be set-off against corporation tax?

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Architects fees: can they be set-off against corporation tax?

Question:

We have a client that sold their multi dwelling building. When tidying up the paperwork this year we have come across a large payment to an architect for an abandoned project to refurbish the building that was sold. It was a hotel that was used as a house in multiple occupation, turns out our client was planning to turn it into individual flats but got sick of the hassle and sold it at auction. Are the architect’s fees allowable against corporation tax? This was the only property in the company, so the company will now be wound up.

Arthur Weller replies:

If you look at HMRC’s Company Taxation manual at CTM08260 and/or its Business Income manual at BIM35325, you can see that any expenditure that would be capital, if successful, is still classified as capital when unsuccessful (i.e. aborted). However, if you look at the Capital Gains manual at CG15160 and CG15186 (and CG15190), you can see that capital expenditure that attempts to enhance the value of the asset is only allowable (to reduce the capital gain when the asset is eventually sold) if it is still increasing the value at the date of disposal of the asset. But if for some reason the asset is not enhanced by this expenditure when the asset is sold, this expenditure is lost.

We have a client that sold their multi dwelling building. When tidying up the paperwork this year we have come across a large payment to an architect for an abandoned project to refurbish the building that was sold. It

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This question was first printed in Business Tax Insider in February 2020.