A recent court case involving HMRC has helped to clarify how repairs and improvements made to business premises, including dental practices, should be classified.
Whether to deduct the cost of building repairs from annual profits or take them from capital gains, including those made during the sale of a property, has long been a bone of contention.
Now, thanks to the case of Wills v Commissioners of HMRC (W v HMRC) things have become a touch clearer.
The case involved Mr Wills, a taxpayer who spent over £100,000 renovating his freehold business premises.
Because part of the building in question was so run down, requiring significant repairs, HMRC argued these actually constituted an improvement.
In finding in favour of Mr Wills, the judge made it clear that, according to the HMRC manual (PIM2020), a like-for-like replacement is a repair, even if the materials used are better than those they replace.
In other words, if you’re planning to renovate your practice, be sure to ask your builder to earmark the costs of work that constitutes no more than a replacement or repair to an existing structure, such as a window or fixture.
These can then be written off as expenses and deducted from your annual profits, even though the overall nature of the work concerned may fall within the realm of improvements.
For more information, please visit www.lansdellrose.co.uk or call Lansdell & Rose on 020 7376 9333.
