Specific deductions: repairs and renewals: non-statutory renewals allowance
Before the introduction of plant and machinery capital allowances, the statutory renewals allowance (see BIM46960) was extended by concession to plant and machinery outside the narrow range to which the legislation on renewals applies. This is sometimes termed the ‘non-statutory renewals allowance’. The relief was an extra-statutory concession and continued to be available for many years after capital allowances were introduced.
This concession has now been withdrawn so that the concessional treatment does not apply in relation to expenditure on replacing plant and machinery which is incurred:
- on or after 6 April 2013, for the purposes of Income Tax; and
- on or after 1 April 2013, for the purposes of Corporation Tax.
The following guidance therefore applies only to expenditure incurred before the above dates.
Subject to the above, a claim to use the non-statutory renewals basis can be admitted provided that the taxpayer is aware of and has accepted the restrictions on relief. The renewals basis can apply if the conditions for its adoption are accepted. These are that:
- no capital allowances are due for the cost of the original asset; there may be a long gap between the expenditure on the original asset and the purchase of the replacement, hence relief can be deferred for a long time;
- there is no deduction for the original expenditure and it cannot be relieved in any other way;
- the renewals basis is confined to plant or machinery; there are special rules for orchards, see BIM55275;
- no relief is due for the cost of any improvement element on the renewal of an asset; and
- the old asset must be definitely discarded before renewals allowance on its replacement is due; the old asset cannot be kept as a reserve.
Non-statutory renewals allowance is only due for the cost of the replacement asset when it is acquired (before 6 April 2013 or 1 April 2013 as indicated above). The deduction due is:
the cost of the new asset (note that the cost of the replacement can be more than the cost of the original but the claim must exclude any part of the cost which is attributable to additions or improvements)
the scrap value or realised price of the old asset which is replaced (this applies whether or not the cost of the new asset (excluding additions and improvements) exceeds the cost of the asset replaced.
Where the deductible cost of the first replacement is restricted because of improvements, a deduction can be given later for the full cost of replacing the improved asset (the first replacement). But there may be a further improvement restriction if the second replacement is an improvement on the first replacement; and so on for each replacement in turn.