I HAVE just concluded one of the most difficult tax enquiries I have ever dealt with. If you have business premises or you are a landlord, I would advise you to read on.

The story began when my client undertook major renovation work to his business premises. He kept a detailed record of the amounts spent showing the date and the name of the supplier.

When we completed his accounts we discussed how much of the expenditure was repairs and how much was capital. This is important because repairs are allowable in the profit and loss account whereas capital expenditure is dealt with differently. We arrived at an allocation we thought properly reflected the situation – 50/50 - and submitted the tax return.

A few months later HM Revenue & Customs opened an enquiry into the tax return and asked how the repairs figure had been arrived at. We explained.

The inspector said he did not agree with our apportionment between repairs and capital because he had looked at the planning application and plans on the council website and had looked at images of the property on the internet (presumably Google Street View). He asked for the builder’s schedule of works, the plans and all other documentation in our possession.

The problem was that none of the information in our possession really took us beyond where we had been when we made the apportionment. The inspector said that in that case he would agree a 90/10 split and would seek a penalty for an incorrect return.

The builder was asked to assist but was less than helpful. A long and detailed exercise ensued and at the end of it we agreed a split of 60/40.

The lesson is that if you are having work done on a business property or on a let property you need to talk to your accountant before you start so that you – and your builder – know what information needs to be available at the end of the job. It is prudent to take plenty of before and after photographs. Your accountant can also explain which elements of capital expenditure may qualify for income tax (or corporation tax) relief.

Having the right evidence to support your tax return will keep your tax bill as low as possible and minimise any penalties. And while my case had a happy ending (with no penalties charged) it could easily have been very different.

*Paul Aplin OBE is a tax partner with A C Mole & Sons and chairman of the Technical Committee of the Institute of Chartered Accountants in England & Wales Tax Faculty; you can follow him on Twitter @PaulAplinOnTax. He and fellow tax partners Amanda Gunter and Paul Kingdom can be contacted on 01823-624450.