What I hope is a simple question. (OH thinks it so simple he would like to disassociate himself from it. However, I’ve been on so many threads and had about 30 tabs on Firefox open on related subjects that I’ve lost sight of what’s logical and what isn’t. Please don’t shout at me.)
Question: Am I right in assuming that you can include a roof repair (the sort of work to a flat roof that needs doing every 10 years or so) on your list of expenses and that this would come under ‘repairs and maintenance’ (and not under the capital allowances bit)? On the grounds that it is to do with preventing the property from deteriorating.
It’s just that I’ve begun to wonder whether costs relating to the bricks and mortar can be claimed under FHL business expenses. I’m not talking about start-up costs, by the way.
UK: Tax Return – roof repair
Nothing to do with the taxman is ever simple!
I have no idea other than a passing interest.
This is what I pulled from the HMRC site. It reads to me as if it is a repair, so long as you haven't just bought the property, and that the repair does not improve the roof in any way. So fine if you are replacing roof felt like for like, but if you decide to put on a super efficient 40 year lifespan product, then that would be an improvement and a capital expenditure. HTH!
BIM46900 - Specific deductions: repairs & renewals: contents
Introduction
For the purposes of this chapter, ’repair' means the restoration of an asset by replacing subsidiary parts of the whole. No significant improvement of the asset beyond its original condition can result or there will no longer be a repair.
The cost of a repair is normally revenue expenditure but the cost of replacing the asset or of making a significant improvement to the asset as a whole will be capital expenditure ( BIM46903).
This doesn't particularly relate to FHL though, so I am assuming it's the same. Jenny C is the accountant here, she may have a quick viewpoint.
I have no idea other than a passing interest.
This is what I pulled from the HMRC site. It reads to me as if it is a repair, so long as you haven't just bought the property, and that the repair does not improve the roof in any way. So fine if you are replacing roof felt like for like, but if you decide to put on a super efficient 40 year lifespan product, then that would be an improvement and a capital expenditure. HTH!BIM46900 - Specific deductions: repairs & renewals: contents
Introduction
For the purposes of this chapter, ’repair' means the restoration of an asset by replacing subsidiary parts of the whole. No significant improvement of the asset beyond its original condition can result or there will no longer be a repair.
The cost of a repair is normally revenue expenditure but the cost of replacing the asset or of making a significant improvement to the asset as a whole will be capital expenditure ( BIM46903).
This doesn't particularly relate to FHL though, so I am assuming it's the same. Jenny C is the accountant here, she may have a quick viewpoint.
I can't give a definitive answer either, but my initial test is always "Is this a necessary, or even essential, expenditure for the business?"
So:
No roof=no business.
Leaky roof=leaky business.
Which I reckon makes it essential expenditure. I'd also have thought that repairing to a higher standard was okay - it delays the need for further expenditure - whereas deciding to make a vast improvement by sticking a swimming pool and/or helicopter landing pad on the roof might be questionable.
But I'm not the taxman............ (trust me - life would be far better for all of us in this business if I was! )
So:
No roof=no business.
Leaky roof=leaky business.
Which I reckon makes it essential expenditure. I'd also have thought that repairing to a higher standard was okay - it delays the need for further expenditure - whereas deciding to make a vast improvement by sticking a swimming pool and/or helicopter landing pad on the roof might be questionable.
But I'm not the taxman............ (trust me - life would be far better for all of us in this business if I was!
)Our new roof has 75 mm insulation and board. Instead of felt, we have fibreglass GRP (glass-reinforced plastic). But isn’t any replacement you make automatically an improvement?. We had a new (replacement) boiler put in this year, and - come to think of it - a new fridge, as the old ones developed faults, and obviously they're more efficient than the previous ones! Doesn’t all this mean that nothing is ever a like-for-like replacement? A new kettle or a new chair is always going to be better than the previous one. Have we unwittingly entered cloud cuckoo land?Nemo wrote:The cost of a repair is normally revenue expenditure but the cost of replacing the asset or of making a significant improvement to the asset as a whole will be capital expenditure ( BIM46903).
OH's view exactly. Which was why he thought that even putting the question was in itself pointless. And why I was anticipating the helpful answer that Nemo gave! I think this is a highly useful criterion to imprint on one's mind!Greenbarn wrote: No roof=no business.
Leaky roof=leaky business.
Which I reckon makes it essential expenditure. I'd also have thought that repairing to a higher standard was okay - it delays the need for further expenditure
So what happens when building regulations change and force an 'improvement'?
For example a new roof will typically need to have more efficient insulation?
I need to repair/replace the windows in our cottage. As I understand it, I can't fit new single-glazing as the building regs wouldn't allow it, but is fitting double-glazing an improvement?
Does it really matter for the tax return (exposing my own ignorance to all!) - as I though that both repairs and capital expenditure were deducted from income to come up with operating profit?
For example a new roof will typically need to have more efficient insulation?
I need to repair/replace the windows in our cottage. As I understand it, I can't fit new single-glazing as the building regs wouldn't allow it, but is fitting double-glazing an improvement?
Does it really matter for the tax return (exposing my own ignorance to all!) - as I though that both repairs and capital expenditure were deducted from income to come up with operating profit?
Open for business.
Next instalment:
BIM46904 - Specific deductions: repairs & renewals: what is a repair: improvements
If the taxpayer repairs the asset, that is restores it to what it originally had been, then that would normally be an allowable expense.
However, the fact that the taxpayer has to deal with a maintenance problem does not mean that the expenditure is allowable. So that you can decide whether or not the costs are allowable, you have to look at the nature and extent of the work carried out.
Small amounts of improvement may be incidental and allowable
Whether the taxpayer has had the asset repaired or improved is a question of fact and degree.
An improvement element may be sufficiently small to count as incidental to the repair. In the absence of other capital indications, the entire cost can then be regarded as revenue expenditure.
Changing technology
Problems can arise with old assets over where is the dividing line between a repair and an improvement.
The fact that the method chosen is the cheapest and most effective is neutral. It does not deprive expenditure of its capital character. Replacing an object may be cheaper and better than patching and mending.
A repair or replacement of a part of the asset using modern materials may look like an improvement because of the greater durability, superior qualities, etc of the new material. If the new materials are broadly equivalent to the old materials then the cost is normally an allowable expense.
•Kate has the windows of her offices replaced. The old windows were singled glazed. She just wants to replace the old units. Building standards have improved and the types of replacement windows available from retailers have changed. The replacement windows are double-glazed. This shows the effect of changes in technology. At one time replacing single-glazed windows with double-glazed windows was regarded as an improvement and therefore capital expenditure. But times have changed. Double-glazing is now standard and is the modern equivalent. Replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs.
•George has the water system in his factory replaced. He cannot replace it with an identical system as it was designed using imperial measures. He uses piping and storage tanks of the closest available metric size. This results in a slightly increased capacity. In this case it is not an improvement. The trivial increase in performance or capacity arises solely from the replacement of old materials with newer but broadly equivalent materials.
•George also has the electrical system replaced. He installs a system of greater capacity to cope with additional equipment. He had not simply replaced his outmoded system with a modern system. This is an improvement and is capital expenditure.
So there's your windows problem sorted Dave!
This is just the edited highlights. Type BIM46900 into the hrmc.gov website to get the links to all the relevant chapters.
BIM46904 - Specific deductions: repairs & renewals: what is a repair: improvements
If the taxpayer repairs the asset, that is restores it to what it originally had been, then that would normally be an allowable expense.
However, the fact that the taxpayer has to deal with a maintenance problem does not mean that the expenditure is allowable. So that you can decide whether or not the costs are allowable, you have to look at the nature and extent of the work carried out.
Small amounts of improvement may be incidental and allowable
Whether the taxpayer has had the asset repaired or improved is a question of fact and degree.
An improvement element may be sufficiently small to count as incidental to the repair. In the absence of other capital indications, the entire cost can then be regarded as revenue expenditure.
Changing technology
Problems can arise with old assets over where is the dividing line between a repair and an improvement.
The fact that the method chosen is the cheapest and most effective is neutral. It does not deprive expenditure of its capital character. Replacing an object may be cheaper and better than patching and mending.
A repair or replacement of a part of the asset using modern materials may look like an improvement because of the greater durability, superior qualities, etc of the new material. If the new materials are broadly equivalent to the old materials then the cost is normally an allowable expense.
•Kate has the windows of her offices replaced. The old windows were singled glazed. She just wants to replace the old units. Building standards have improved and the types of replacement windows available from retailers have changed. The replacement windows are double-glazed. This shows the effect of changes in technology. At one time replacing single-glazed windows with double-glazed windows was regarded as an improvement and therefore capital expenditure. But times have changed. Double-glazing is now standard and is the modern equivalent. Replacing single-glazed windows by double-glazed equivalents counts as allowable expenditure on repairs.
•George has the water system in his factory replaced. He cannot replace it with an identical system as it was designed using imperial measures. He uses piping and storage tanks of the closest available metric size. This results in a slightly increased capacity. In this case it is not an improvement. The trivial increase in performance or capacity arises solely from the replacement of old materials with newer but broadly equivalent materials.
•George also has the electrical system replaced. He installs a system of greater capacity to cope with additional equipment. He had not simply replaced his outmoded system with a modern system. This is an improvement and is capital expenditure.
So there's your windows problem sorted Dave!
This is just the edited highlights. Type BIM46900 into the hrmc.gov website to get the links to all the relevant chapters.
It certainly does. Repairs can be offset in one go in the tax year they were carried out. Capital expenditure goes into the Capital Allowance category with all the varying rules that involves in writing down an asset over a period of years. They both have their place within a business, but are different for tax purposes.DaveN wrote: Does it really matter for the tax return (exposing my own ignorance to all!) - as I though that both repairs and capital expenditure were deducted from income to come up with operating profit?
And much appreciated!So there's your windows problem sorted Dave!
It looks as though I need to do more reading on Capital allowances before I get rid of the accountant though! As we started from scratch two years ago, we had a fair amount of capital outlay in furnishing and equipping the place. I though that we could declare up to (going from memory now!) something like £50K in one go as an annual investment allowance?
Open for business.
You might fancy getting this book (the cost is probably tax deductible?) written by John Endacott who did a great deal on our behalf in the FHL campaign. No idea how readable it is for non-accountants, but if you get it you could let us know.......DaveN wrote:
It looks as though I need to do more reading on Capital allowances before I get rid of the accountant though!
The AIA covers plant and machinery, so yes furniture, kitchen fittings and the like. I don't think it covers repairs and renovations etc. It does cover certain integral features.
Next instalment:
Some examples of AIA qualifying expenditure
‘Plant or machinery’ actually covers almost every sort of asset a person may buy for the purposes of his/her business. Really the only business assets not covered are land, buildings and cars (which are excluded by one of the ‘general exclusions’). Typical examples of plant or machinery include:
◦computers and all kinds of office furniture and equipment
◦vans, lorries, trucks, cranes and diggers
◦‘integral features’ of a building or structure, see CA22320
◦other building fixtures, such as shop fittings, kitchen and bathroom fittings
◦all kinds of business machines, such as printing presses, lathes and tooling machines
◦tractors, combine harvesters and other agricultural machinery
◦gaming machines, amusement park rides
◦computerised /computer aided machinery, including robotic machines
◦wind turbines and fibre optic cabling.
Expenditure qualifying for more than one allowance
Example
Golden Aquarium Ltd is an expanding company selling tropical fish. In its 2009 chargeable period it incurs the following expenditure:
◦£95,000 on converting an empty warehouse in a disadvantaged area into a new retail outlet, qualifying for BPRA at 100%
◦£10,000 on environmentally beneficial (water conserving) equipment in its main shop, qualifying for FYA at 100%
◦£20,000 on new electrical and central heating systems for its main shop, which comprise ‘integral features’, qualifying for 10% WDAs
◦£80,000 on a new van and other general equipment, qualifying for 20% WDAs in the main pool.
You can see why we pay accountants now can't you, but I always think it's good to understand some of it at least!
Next instalment:
Some examples of AIA qualifying expenditure
‘Plant or machinery’ actually covers almost every sort of asset a person may buy for the purposes of his/her business. Really the only business assets not covered are land, buildings and cars (which are excluded by one of the ‘general exclusions’). Typical examples of plant or machinery include:
◦computers and all kinds of office furniture and equipment
◦vans, lorries, trucks, cranes and diggers
◦‘integral features’ of a building or structure, see CA22320
◦other building fixtures, such as shop fittings, kitchen and bathroom fittings
◦all kinds of business machines, such as printing presses, lathes and tooling machines
◦tractors, combine harvesters and other agricultural machinery
◦gaming machines, amusement park rides
◦computerised /computer aided machinery, including robotic machines
◦wind turbines and fibre optic cabling.
Expenditure qualifying for more than one allowance
Example
Golden Aquarium Ltd is an expanding company selling tropical fish. In its 2009 chargeable period it incurs the following expenditure:
◦£95,000 on converting an empty warehouse in a disadvantaged area into a new retail outlet, qualifying for BPRA at 100%
◦£10,000 on environmentally beneficial (water conserving) equipment in its main shop, qualifying for FYA at 100%
◦£20,000 on new electrical and central heating systems for its main shop, which comprise ‘integral features’, qualifying for 10% WDAs
◦£80,000 on a new van and other general equipment, qualifying for 20% WDAs in the main pool.
You can see why we pay accountants now can't you, but I always think it's good to understand some of it at least!
Now that I would be interested in.....but not at £58.50 I'm afraid! Anybody for a time share........?Greenbarn wrote: You might fancy getting this book (the cost is probably tax deductible?) written by John Endacott who did a great deal on our behalf in the FHL campaign. No idea how readable it is for non-accountants, but if you get it you could let us know.......
Don't worry I'm not normally this excited by accounting, but I'm in the middle of doing my accounts......four days in and I'm turing into an accountant.
Thanks Nemo,
Good point, I did look into the capital allowance stuff at the start when we were equipping & furnishing, and thought that it fell into the AIA category. Sounds like that's your interpretation also.
I'd then gone on to assume (lazily!) that the same rules would apply to improvements during renovation, as to plant & machinery...
As it happens, it looks as though I don't need to worry for now (as the windows will fall into the repairs category and we're not planning on any other major changed).
GB - similar view on the book - but I don't think I'd ever find the motivation to plough through it!
I find the IR website quite readable, but always have the nagging suspicion that I'm building on shaky assumptions or missing something important. Each explanation seems to contain a (almost throwaway) remark that sends me scurrying off to find out about something related than I'd not even thought about at the start...
So sorry Wonkeye to have hi-jacked your thread
Good point, I did look into the capital allowance stuff at the start when we were equipping & furnishing, and thought that it fell into the AIA category. Sounds like that's your interpretation also.
I'd then gone on to assume (lazily!) that the same rules would apply to improvements during renovation, as to plant & machinery...
As it happens, it looks as though I don't need to worry for now (as the windows will fall into the repairs category and we're not planning on any other major changed).
GB - similar view on the book - but I don't think I'd ever find the motivation to plough through it!
I find the IR website quite readable, but always have the nagging suspicion that I'm building on shaky assumptions or missing something important. Each explanation seems to contain a (almost throwaway) remark that sends me scurrying off to find out about something related than I'd not even thought about at the start...
So sorry Wonkeye to have hi-jacked your thread
Open for business.