The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
The key consideration in determining whether expenditure on repairs and renewals is allowable as a deduction for tax purposes is whether it is capital or revenue in nature.
In some cases, it can be relatively straightforward to identify revenue repairs. HMRC provides the following list of examples of deductible items:
exterior and interior painting and decorating
damp and rot treatment
mending broken windows, doors, furniture and machines such as cookers or lifts
replacing roof slates, flashing and gutters
In other cases, the distinction can be less clear. Where the expense enhances, expands or improves an asset, it is a ‘sum employed as capital’ in the business and the expense is disallowed.
It is also possible that the repair costs are not incurred ‘wholly or exclusively’ for the purposes of the trade, in which case they would not be allowable.
This guidance note considers the application of these general principles and other specific provisions in relation to repairs and renewals expenditure.
See BIM46900 and Simon’s Taxes B2.466.
When analysing expenditure incurred on repairs and renewals for tax purposes, it is likely that four main categories will be relevant:
deductible as revenue
disallowed as capital but qualifying for capital allowances
potentially adding to the base cost for capital gains purposes on subsequent disposal
for small businesses, disallowable for failing the wholly and exclusively test (see below)
It is most common to find repairs being disallowed on the basis that they are capital in nature for tax purposes. This distinction has arisen out of case law and so each item of expenditure must be judged on its own facts.
The Capital vs revenue expenditure guidance note discusses this in general. See also Simon’s Taxes Division B2.3A. Of particular application to repairs and renewals are the principles of:
identifiable asset ― has a particular asset been acquired, disposed of or modified?
entirety ― has the whole of an asset been replaced?
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