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HMRC internal manual

Business Income Manual

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Specific deductions: repairs and renewals: what is a repair: different materials

Building methods change over time. When the time comes for an asset to be repaired, the taxpayer may find that they have to use different materials, indeed they may be legally required to do so.

Care needs to be taken as the use of modern materials may give an apparent element of improvement because of the greater durability, superior qualities and so forth of the new material. The reality may be that the work simply means the asset is in a fit state to be used as before; it does not do a different job or a better job.

The position is that:

  • the work is a repair and not an improvement if after the work is carried out, the asset can just do the same job as before;
  • the work is an improvement and therefore disallowable as capital expenditure if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before.

For more detailed guidance on this point, see BIM35455.

In borderline cases it is worth considering whether the character of the asset has changed, see BIM46950.

Example 1

Jeff owns a warehouse. The wooden beams supporting the first floor need replacing. Jeff’s architect used steel girders rather than wooden beams. Whether Jeff has repaired or improved the property is a question of fact and degree.

If Jeff can use the first floor as he did before and the floor can support more or less the same weight as before, then all Jeff has done is repair the building using modern materials. It is an allowable expense.

If Jeff can now use fork lift trucks or store more because the floor is stronger then it is an improvement; the expenditure is capital and not an allowable deduction.

Example 2

Joyce owns a hotel. Part of the building dates to the sixteenth century and the exterior façade is a listed building.

Joyce could use modern materials to repair some of the interior, but chooses to use traditional materials as far as possible. Whilst the work is considerably more expensive than it would have been using modern materials, Joyce sees a commercial advantage in maintaining the traditional look and style.

The work simply restores the property. There is no alteration or improvement. It is simply a repair and allowable expenditure.