B2.414 Closedown and rationalisation of the trade—general
Where a trade does not cease but expenditure is incurred in rationalising it, the expenditure may be deductible on the basis that it is incurred to enable what remains of the trade to be carried on profitably: the part discarded or run down enables the rest of the trade to survive.
Where, however, the expenditure is incurred on capital assets it may be categorised as capital. In Westinghouse Brake Co1, a company opened a factory and installed machinery, but subsequently closed it, and reopened it on a smaller scale. The loss was held to be a loss of capital and not deductible.
Similarly, a loss incurred in converting a works for the manufacture of a different kind of product was not allowed2.
With regard to removals and related expenditure, see B2.464.
Closedown of part or all of the business
Where part or all of the business is closed down, rather than a mere rationalisation of the trade, the expenditure incurred will generally be disallowed on the grounds either that it is capital in nature or that it is not incurred for the purposes of