Is it a repair – or is it a new asset?
The cost of repairing an asset is a tax-deductible expense. You’ll get the tax relief in the same year that you incur the expense. But the cost of replacing an existing asset with a new one is treated differently. Even if capital allowances are available on the new asset, the tax relief is likely to be delayed and given over a number of years. So, it’s pretty sensible that you’d prefer an expense to be treated as a repair rather than an asset replacement.
There was a recent case which HMRC lost against the taxpayer, and this might be useful to bear in mind. The taxpayer spent several thousand pounds ‘repairing’ the driveway to his farm. He’d drilled up the old tarmac and used it as hard-core for the new, concrete driveway. HMRC said that this constituted a ‘new asset’. It justified its argument by claiming that the old driveway no longer existed and that the new driveway (made from concrete, not tarmac) represented an ‘improvement’. But it lost the case. This is interesting. The tribunal said that (a) the old driveway did still exist (yes, it was just buried under the new one, but it played an important role in the construction of the concrete driveway) and that the new driveway wasn’t an improvement on the old one. It was the same length and width and was constructed to carry the same kind of vehicles as old one.
What can we learn from this? Well, to get the cost to qualify as a ‘repair’, ask the company doing the work for you to retain as much of the old asset as possible (e.g. the framework). And don’t worry about the fact that the materials used might be of better quality than those previously used. This victory for the taxpayer has shown us that so long as the asset performs the same function as it did before, it’s a repair – even though it might look better and be made of better, more durable materials.