B2.466 Repairs and renewals
Repairs and renewals expenditure is often scrutinised by HMRC when reviewing a tax computation as it is an expense category which can often contain items of a capital nature, which should be disallowed. Genuine repairs are revenue items and are allowable. However, where a repair results in an asset being in a better condition than prior to the work being carried out, it will be classed as an improvement, which is not allowable.
For a detailed analysis of the distinction between capital and revenue items for tax purposes, see Division B3.2A.
For HMRC guidance concerning repairs and renewals, see BIM46900 onwards. HMRC also gives extensive guidance as to what, in their view, is an improvement, and therefore capital expenditure, and what is a repair, and therefore revenue expenditure1. The guidance is based on a substantial body of case law, much of which is summarised below. See B2.404 regarding expenditure incurred following the purchase of an asset, which also describes the capital allowances that may be available for repairs expenditure which is disallowed2.
The following are considered to be deductible:
• the cost of replacing worn out railway lines by new ones of the same type was