B2.444 Improvement or expansion of the business organisation
Costs incurred on the improvement or expansion of the business are often capital in nature and are therefore disallowable (see cases in B2.406–B2.407, B2.409). It is necessary to distinguish between expenditure which enhances, expands or improves (capital) and that which preserves, maintains or repairs the existing fabric of the business (repairs) (see cases in B2.408, B2.443, B2.466), to ascertain whether there are in fact any deductible costs.
In some cases it will be necessary to obtain some statutory authority, consent or power to alter the existing business fabric. In Savill Brothers Ltd1, a brewery made payments for the 'call of licences'. These are payments made to the owners of public houses for the right to call for a surrender of the licences in certain circumstances, before the grant of a new licence for a new house. When the application was successful the brewery added the expense to the cost of the house, but when the application was unsuccessful the brewery charged the cost to the 'licence expenses' of the year. The costs, however, were disallowed as a deduction because the expenditure was applied in 'attempts to extend' the taxpayer's business. Whether or not the expenditure achieves its desired objective does not affect its character.
This was contrasted with expenditure on the upkeep of licences and the expense of procuring the renewal of licences, both of which would be allowable maintenance type costs of the trade.
In Morse2, the principle in Savill Brothers Ltd was held