BIM46950 - Specific deductions: repairs & renewals: change from plant & machinery allowances to renewals basis
Statutory renewals basis
When assets within ICTA88/S74 (1) (d) (implements, articles and utensils) are replaced a revenue deduction can be taken for expenditure on the replacement assets (subject to the normal renewals rules about improvement etc). This applies even if machinery and plant capital allowances were claimed on the expenditure on the assets which are now being replaced. But the taxpayer can, alternatively, have machinery and plant allowances.
Non-statutory renewals basis
A renewals deduction cannot be given on capital expenditure incurred on the replacement of an ’entirety' where:
- the original asset was outside the statutory renewals basis ( BIM46935); and
- capital allowances were claimed on the original asset.
This is because the expenditure on the replacement asset is
capital expenditure which, under ordinary principles, cannot be
deducted in a revenue computation except under the terms of the
renewals practice.
The taxpayer can make the change to renewals basis only by
accepting that there is no deduction for the initial expenditure on
renewals basis assets. This is not attractive because of the delay
in obtaining relief.
The bar on a renewals deduction for non-statutory renewals
basis assets applies where, on ordinary principles, capital
expenditure is incurred on the replacement asset. It will not apply
where revenue expenditure is incurred and this includes cases where
the replacement is machinery or plant.
This may happen, for example, where part of a piece of
machinery is replaced and this can properly be regarded as a
subsidiary part of a larger ’entirety'. Here the replacement
of the part may be a revenue repair to the whole.
