By Tolley

The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Repairs
  • Tax treatment of repairs expenditure
  • Renewals
  • Initial repairs
  • Provisions for repairs
  • Wholly or exclusively
  • Removal expenses

When determining whether repairs are allowable deductions for tax purposes, there are a couple of considerations. The most important, by far, is whether repairs are capital or revenue in nature.

CTA 2009, s 53; ITTOIA 2005, s 33

The other key reason for disallowing repair costs is when they are not incurred ‘wholly or exclusively’ for the purposes of the trade.

CTA 2009, s 54; ITTOIA 2005, s 34

However, where the trader is using the simplified cash basis, the rules as discussed in the Simplified cash basis expenditure guidance note should be considered. Broadly, where expenditure would be eligible for plant and machinery allowances, the expenditure is treated as an allowable cash basis expense.

See also Simon’s Taxes B2.466 (subscription sensitive).

This guidance note considers the application of these general principles and other specific provisions in relation to repairs and renewals.

Tax treatment of repairs expenditure

It is most common to find repairs being disallowed on the basis that they are capital in nature. This distinction has arisen out of case law and so each case must be judged on its own facts.

The Capital or revenue guidance note discusses this in general. Of particular application to repairs are the principles of:

  • identifiable asset
  • entirety, and
  • enduring benefit

These individual concepts run through the distinction between capital and revenue. However, no one principle categorically defines whether expenditure is capital or not. Each case should be judged on its own facts.

Further to these, there are some specific rules established through case law, which includes the issue of initial repairs on acquired assets.

See the checklist Summary ― repairs for a summary of general rules and supporting materials.

More on Adjustment of profit: