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What is a business repair?

9 November 2023

Understand HMRC's guidelines on business repairs to distinguish allowable expenses from capital expenditure. Focus on assessing assets independently, relying on facts rather than fixed tests, emphasizing the importance of discerning separate entities.

HMRC’s internal manuals provide some useful information on the definition of a business repair. This is important because it is required to identify the asset on which work has been carried out.

This is because:

  • the cost of repairing a worn or dilapidated asset is normally an allowable expense;
  • the cost of replacing the whole or the ‘entirety’ of an asset is not a repair; it is capital expenditure and not an allowable expense.

HMRC’s guidance goes on to explain that what forms the asset or entirety is a question of fact. It is important to ascertain whether the ‘asset’ is in fact a separate asset or is part of a bigger asset.

The basic starting point is to establish the facts about the specific asset you are considering. Then to ask the question; does this look like a separate asset? Is it something that stands apart from other assets, is it freestanding or is it something that is removable? This is a question of fact and degree; there are no ‘tests’ that can be applied.

With buildings and structures, the question is whether the item replaced appears to be a free-standing asset. The fact that it is connected to another structure, for example by a flue, does not make it part of that larger asset.

It also needs to be considered whether something has become part of something else. If something is a ‘fixture’ then it has become part of the building and not an entirety in its own right.

Source: HM Revenue & Customs Tue, 07 Nov 2023 00:00:00 +0100

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