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»Ê¹ÚÌåÓýapp costs of restoring capital assets, adapted during the course of a trade, to their original condition is capital.

In the case of RTZ Oil & Gas Ltd v Elliss [1987] 61TC132 the company held a licence to exploit an oil field. It was a condition of the licence that when the field was abandoned the wells should be capped and the equipment removed. »Ê¹ÚÌåÓýapp company hired a drilling rig and tankers and a condition of hire was that the tankers had to be restored to their original condition. »Ê¹ÚÌåÓýapp company made provision for the close down costs of the oil field and for converting the tankers claiming that the expenditure was of a revenue nature. »Ê¹ÚÌåÓýapp agreed accountancy evidence was that the accounts were correctly drawn up in accordance with the ordinary principles of commercial accountancy.

Vinelott J held that the accountancy evidence did not bear on the issue as to whether the expenditure was of a capital or a revenue nature as the same provision would have been made either way. It may be necessary to give a true and fair view of the profits earned by a trade in a given year to make an allowance for the depreciation of a wasting asset on which capital has been expended. But no such allowance should be made in assessing the taxable profits for the year.

Relying on Granada Motorway Services [1979] 53TC92 (see BIM35320), Vinelott J held that the fact that the contract of hire was non-assignable and had no balance sheet value was irrelevant. »Ê¹ÚÌåÓýapp rig and the tankers were profit-making apparatus and the cost of re-conversion was capital expenditure.