Premises repairs & maintenance

Conditions

1. HMRC's manual says the cost of a repair is normally allowable expenditure, but the cost of replacing an asset or of making a significant improvement to an asset is capital expenditure and not allowable as a deduction (BIM46901). GOV.UK's self-employed expenses guidance says you can claim expenses for repairs and maintenance of business premises and equipment.
2. The repair-versus-improvement line: 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; it is an improvement, and disallowable as capital expenditure, if as a result more can be done with the asset, or the asset can be used to do something that it could not do before (BIM46920). The cost of altering an asset so that it does something different is not allowable either (BIM46901).
3. Using new or modern materials does not of itself stop work being a repair (BIM46901). HMRC's example is a warehouse whose wooden beams supporting the first floor are replaced with steel girders: if the first floor can be used as before and supports more or less the same weight, it is a repair using modern materials; if fork lift trucks can now be used or more stored because the floor is stronger, it is an improvement and capital (BIM46920).
4. Replacing a part of an asset is a repair to the asset, but replacing the whole asset is not a repair (BIM46901). What forms the asset or 'entirety' is a question of fact (BIM46910). A fixture has become part of the building, so, except where an integral feature is being replaced, replacing a fixture is a repair to the building (BIM46910).
5. Integral features have their own rule. They are an electrical system (including a lighting system), a cold water system, a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system, a lift, an escalator or a moving walkway, and external solar shading (section 33A(5) CAA 2001). They do not include any asset whose principal purpose is to insulate or enclose the interior of a building or to provide an interior wall, floor or ceiling which (in each case) is intended to remain permanently in place (section 33A(6) CAA 2001). If expenditure on an integral feature is more than 50% of the cost of replacing it, whether incurred in one go or within 12 months, it is treated as capital expenditure on replacing the integral feature for capital allowances purposes and no deduction is available except under the capital allowances rules (section 33B CAA 2001, BIM46945). GOV.UK says that if you use traditional accounting you can claim capital allowances for some integral parts of a building, for example water heating systems.
6. Repairs soon after you acquire premises are not disallowed just because of their timing, or because they were needed when you acquired the premises. The cost is capital if it is effectively part of the cost of acquiring the asset (BIM46935). HMRC's pointers towards capital include that the asset could not be used in the business without being repaired, or that the purchase price reflected the fact that it needed repairing to be useable. Pointers towards an allowable repair include that the repairs are part of the routine normal maintenance cycle, or that the price paid was not affected by the asset's condition (BIM46935).
7. If you lease premises and, as part of the lease, agree to restore the property to a good state of repair, HMRC's manual says those repairs are capital expenditure, though relief for all or part of the expenditure may be available under the premium legislation (BIM46940). Ask your accountant how that applies to your lease.
8. If the work amounts to an alteration or improvement, there is no revenue deduction for any part of it, including redecoration after the main work has been done (BIM46915). Nor can you deduct the 'notional repair', meaning what it would have cost simply to repair the asset (BIM46930).
9. Sole trader on the cash basis: all eligible businesses must start using the cash basis from 6 April 2024 unless they elect to calculate their profits in accordance with generally accepted accounting principles (BIM70000). On the cash basis section 33 ITTOIA 2005 does not apply (section 32A ITTOIA 2005). Instead, no deduction is allowed for an item of a capital nature on, or in connection with, the provision, alteration or disposal of land, and that includes depreciating assets provided as part of the land (section 33A ITTOIA 2005, BIM72036). A deduction is not prevented for a depreciating asset fixed to the land unless it is incurred on or in connection with a building; a wall, floor, ceiling, door, gate, shutter, window or stairs; a waste disposal system; a sewerage or drainage system; or a shaft or other structure for a lift, hoist, escalator or moving walkway (BIM72036). GOV.UK says that for alterations to install or replace equipment you claim allowable expenses if you use cash basis accounting, and capital allowances if you use traditional accounting.
10. Capital work on a building may qualify for the structures and buildings allowance. GOV.UK says the allowance can be claimed on construction costs, which include renovation, repair and conversion costs, and that all construction contracts must have been signed on or after 29 October 2018. Repairs incurred on or after 29 October 2018 that are incidental to the renovation or conversion of part of a building are deemed part of the capital cost of that work, and considered separately for the allowance (BIM46901). On the cash basis no capital allowances are available except on a car (section 1A CAA 2001).
11. Limited company: companies cannot use the cash basis (BIM72010). In calculating the profits of a trade, no deduction is allowed for items of a capital nature (section 53 CTA 2009), and HMRC's repairs chapter is general guidance on deductions for repairs in calculating the profits of a trade or property business (BIM46900), so the repair, improvement, entirety and integral-feature tests above apply to a company's premises too.
12. Employee: there is no specific relief for premises repairs. GOV.UK's employee guidance names no route for them among the things an employee can claim for, and an employee's general deduction is under section 336 ITEPA 2003, which HMRC calls very restrictive: all of its tests must be passed, including that the expense is one each and every holder of that employment would have to incur (EIM31630).

Common mistakes

• Deducting improvement work as a repair because it was done alongside repairs. In HMRC's example a company renews its roof and refurbishes its staff kitchen, which are repairs, and enlarges its showroom by demolishing an interior wall, building a new one and installing a new floor and false ceiling, which is an alteration and improvement and capital expenditure (BIM46915).
• Claiming the cost of the repair you would have needed anyway after choosing to improve instead. In HMRC's example, Kate needs her office roof repaired but has the roof space opened up and additional windows put in to use it as office space; she cannot claim the cost that she would have spent on repairs (BIM46930).
• Assuming every repair just after buying premises is capital. In HMRC's example, a trader buys an empty office stripped of its copper fittings and cannot claim the new plumbing and related plastering and decorating, because the price reflected the condition, but can claim repainting the exterior, normal maintenance work done every few years (BIM46935).
• Deducting the replacement of most of a heating, electrical or similar system as a repair. Expenditure of more than 50% of the cost of replacing an integral feature is treated as capital expenditure for capital allowances purposes (section 33B CAA 2001, BIM46945).

What to keep

• Contractor invoices clearly describing the work carried out.
• Written specifications or instructions issued to the contractor before work started, showing what was asked for.
• Photographs showing the condition before and after the work, particularly where the nature of the work (repair vs improvement) might be questioned.
• For premises you have recently bought, the contract of sale and any negotiations leading up to it: HMRC looks at the condition of the asset and how the price was arrived at (BIM46935).

Real-world example

A sole trader's workshop has a leaking roof. She pays a roofer to replace the damaged tiles and re-seal the affected area, so the roof can just do the same job as before: that is a repair and the cost is allowable (BIM46920). She also asks the roofer to install two new roof lights that were not there before. If, as a result, the building can be used to do something that it could not do before, that part is an improvement and capital, not a repair (BIM46920). On the cash basis no deduction is allowed for a capital item in connection with the alteration of land (BIM72036); under traditional accounting she should ask her accountant whether any capital allowance applies.

Frequently asked