Finance: Saving tax on renovations

There is an oft-used phrase among those in the accountancy profession that no one should ‘let the tax tail wag the investment dog,’ meaning investment decisions should not be made solely for tax reasons. But that said, if a practice wants to survive and grow, it will need to invest. Premises are key to this and if it follows the rules set down in law much of the investment can be offset against tax.

Understandably, businesses may take the opportunity to carry out improvements at the same time as repairs. But to Helen Thornley, a technical officer at the Association of Taxation Technicians, there are distinct differences between repairing and improving business premises, each of which can have huge tax consequences.

She says that ‘the question of whether expenditure is a repair or an improvement is a classic tax problem. Relief for building repair costs is generally given against revenue in the period that the cost is incurred. In contrast, money spent on improvements to premises is considered to be capital and the business will only get relief when it sells or otherwise disposes of the premises.’