The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
‘Repairs’ are allowable for corporation tax purposes whereas ‘improvements’ are capital expenditure and must be disallowed.
An expense is a ‘repair’ where it restores an asset to its original condition. Where the expense enhances, expands or improves an asset, HMRC treats it as a ‘sum employed as capital’ in the business and the expense is disallowed under CTA 2009, s 53.
However, the use of modern materials in repairing an old building does not automatically mean that there will be an element of improvement. For example, HMRC accepts that replacing old windows with double-glazed equivalents constitutes a repair.
Where an expense is a capital improvement, the ‘notional’ cost of what it would have taken to repair the asset is not allowed.
HMRC guidance contains examples, including the following:
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