The key distinction is between restoring the premises and improving them. Repairs and redecoration that simply put the café back into the condition required by the lease, without adding a new asset, extending its life, or changing its character, are normally revenue expenses. If they are incurred wholly and exclusively for the trade, they are generally deductible in calculating taxable profit. A payment to the landlord in lieu of carrying out those repairs is treated in a similar way, to the extent that it represents the cost of revenue repairs you would otherwise have done.
Work that goes beyond restoration is different. If you upgrade the flooring to a materially better specification, reconfigure the layout to create a more valuable trading space, or add fixtures that are capital in nature, that element is capital and is not deductible as a revenue expense. It may still be relevant for capital allowances if it is plant or machinery, or for the tax treatment of the lease, but it should be separated from ordinary dilapidations. Keep the landlord's schedule item by item, so you can show which items were repairs and which were improvements, rather than treating a single lump sum as all revenue.
Break-clause and exit costs need separate analysis. Professional fees for negotiating the exit, and payments that are in substance rent or compensation for repairs up to the break date, are often revenue. A payment made to surrender the lease, buy out future obligations, or secure release from a long lease can, however, be capital if it secures an enduring benefit or disposes of a capital asset. The wording of the settlement matters, so do not assume every exit payment is automatically deductible. If the landlord waives part of the claim in return for prompt vacation, you can only deduct what you actually pay or are liable to pay; the waived amount is not a cost. Retain the lease, the dilapidations schedule, surveyor reports, the settlement agreement, invoices, and proof of payment, and check whether VAT was charged and is recoverable.
