Tax Relief on Machinery Repair – Calculating Best Outcomes
For those of you with businesses using machinery ranging from vans to tractors, we often get asked about relief on recently purchased machinery that is then repaired or renovated for use in your business – is there an immediate tax relief for the repair costs or do special rules apply that spread relief over years?
The answer is it depends upon how the repair cost is categorised by HMRC – either as a capital or revenue expense and how your accountant then calculates this if it is a capital spend.
Repairs as Capital Versus Revenue Expenditure
When working out the amount of tax deduction you can claim on cost of repairing equipment, the key factor to consider is how soon after purchase was the repair needed before you could use the machinery.
HMRC sees repairs on recent machinery purchased as costs under capital because the expense is incurred to make the asset usable in the business, thus the cost of acquiring.
While you could adopt arguments to counter HMRC’s view on repair costs, it could prove to be more trouble than it’s worth and easier to take the route of claiming a capital allowance.
Claiming Capital Allowance – Annual Investment Allowance
Rather than a tax deduction for repairs against 2022 profits, for recent purchase repairs you will need to add the repair cost to purchase price and claim capital allowances (CA). This can mean spreading the tax relief over years (with some exceptions), so speak to your accountant.
To avoid spread out tax relief you may be able to use your Annual Investment Allowance (AIA) if you have any spare (maximum AIA is £1m per year), to claim the whole cost as a capital allowance in one go from 2022 profits. AIA, can’t be used for expenditure on cars (vans are ok) and certain other types of asset.
As no ‘one size fits all’, we advise you to talk to your accountant to assess your individual situation.
If you have concerns over capital relief causing a significant delay in tax relief or your total repairs figure is really large and you’re concerned about cashflow, speak to our qualified tax advisors who can calculate the best outcome while remaining compliant.
Our team understands relief on machinery for your business, so please don’t hesitate to contact us.