Effective from 6 April 2018
A repair or replacement of a part of an asset using modern materials may look like an
improvement, but if the new materials are broadly equivalent to the old materials then the cost is
normally an allowable expense. For example, replacing single-glazed windows with double
glazed windows. For further guidance on using different materials see BIM46925.
If the work results in the renewal or replacement of an asset as a whole, then all of the
expenditure incurred should be treated as capital expenditure.
The importance of good record keeping is also relevant in cases where it may be possible to
apportion the total of the expenditure between capital and revenue. For example a debit in the
profit and loss account may read "building works" in an amount of £100,000. However an
analysis of the detailed invoices may indicate that £40,000 was spent on an identifiable
improvement of the building, which would correctly be capital in nature and the balance of
£60,000 was identified as revenue expenditure. This would allow for an acceptable
apportionment of the total expended of £100,000 and result in the balance of £60,000 being a
revenue expense of the business as repairs.
Where the records kept do not allow for such an apportionment to be identified then all the
expenditure will be treated as capital. An example of mixed expenditure could be legal fees
incurred in relation to a planning permission application, part of which involves new or extended
planning permissions (capital) and part of which relates to a renewal of an existing planning
permission (revenue) If the invoices do not split the legal fees incurred between these two
elements, then, ordinarily, all the legal fees should be treated as being capital in nature.
The possibility of expenditure on improvement or alteration should particularly be considered
where a newly acquired asset is being subjected to a change of use, and therefore needs to be
altered to adapt it for its new purpose.
For further guidance on improvements and alterations see BIM46915.
There are also special rules relating to expenditure on specified parts of buildings called
‘integral features’. The following are integral features:
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
external solar shading
Under these rules if expenditure on an integral feature represents the whole, or more than 50%,
of the cost of replacing the integral feature, then the whole of the expenditure is to be treated as
capital expenditure on the replacement of an integral feature for capital allowances purposes.
No deduction is then available for the expenditure in computing the profits of the trade (except
under the capital allowances rules).
For further guidance see
back to checklist
3. Has any expenditure on essential repairs to a newly acquired asset been
If an asset cannot be used as soon as it is acquired because of its poor condition and the
purchase price was substantially reduced to reflect the need for repairs, then the cost of those
repairs may be capital expenditure.