ICTA88/S74 (1) (d) is statutory authority for a deduction for the renewal of small assets in certain limited circumstances. This ’renewals allowance' applies only to deductions for expenditure on the replacement of ’implements, utensils or articles' such as ’loose tools' and other similar assets (Hyam v CIR  14TC479). The word ’supply' in the legislation is used in the old sense of ’replacement' (now used in the expression ’supply teacher') and no deduction is due for the initial cost of the items.
Before the introduction of machinery and plant capital
allowances, the renewals allowance was extended to machinery and
plant assets outside the narrow range to which ICTA88/S74 (1) (d)
applies. The cost of such assets is capital expenditure and any
relief is only due under the capital allowances machinery and plant
code. But, as explained below, the renewals basis remains available
although it is usually less favourable than machinery and plant
allowances. The non- statutory renewals basis fell into disuse
during the era of 100% first-year allowance.
A claim to use the non-statutory renewals basis may be admitted provided that the taxpayer is aware of and accepts the restrictions on relief. The renewals basis works if the conditions for its adoption are accepted. These are that:
Renewals allowance is only due for the cost of the replacement asset when it is acquired. The deduction due is:
Where the deductible cost of the first replacement is restricted because of improvements, a deduction can be given later for the full cost of replacing the improved asset (the first replacement). But there may be a further improvement restriction if the second replacement is an improvement on the first replacement; and so on for each replacement in turn.
The theory behind the renewals basis is that the deduction for
the replacement asset (asset 2) broadly relieves the depreciation
suffered on the original asset (asset 1). Similarly, the deduction
given for the next replacement (asset 3) relieves the depreciation
suffered on asset 2; and so on for each replacement. The extra cost
of buying an improved replacement asset (say asset 2) is disallowed
for the same reason, namely, that the initial capital expenditure
is not deductible only the cost of the replacement.
The deduction should also be restricted by any subsidies from outside sources which fall within the terms of CAA01/S532 (see CA14100).
For changes of basis see BIM46950 onwards.