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A useful test to apply in deciding whether expenditure is on repairs, especially where a lot of work has been done, is to consider whether the character of the asset has changed as a result of the work. Put simply, you need to ask whether it is the same object before and after the work.

If after the work the asset simply does the same job as before, then it is a pointer that the work is a repair.

Example

For many years A Ltd has operated retail premises from a two-storey property in an historic town centre. A survey reveals that the property is in an extremely poor state of repair. »Ê¹ÚÌåÓýapp directors decide that the premises should be gutted and modernised. »Ê¹ÚÌåÓýapp work carried out as set out in the invoices includes the following:

• »Ê¹ÚÌåÓýapp roof was stripped off, all rotten roof timbers removed, the roof replaced in the same position and with the same outline so there is no additional space.
• Corrugated asbestos roofing installed in the 1960s was replaced by tiles.
• »Ê¹ÚÌåÓýapp first floor was stripped out and reinstalled supported on steel joists rather than timber.
• On the ground floor, oak flooring was stripped out and replaced by a concrete floor that provided a flat, even surface.
• »Ê¹ÚÌåÓýapp shop front was replaced.
• »Ê¹ÚÌåÓýapp oak beam over the shop was replaced by a steel joist.
• »Ê¹ÚÌåÓýapp oak pillar supporting the front corner of the building was replaced with a steel stanchion.
• Any visible steelwork was clad in salvaged oak to maintain the appearance of the property.
• »Ê¹ÚÌåÓýapp electrical system was renewed.

»Ê¹ÚÌåÓýapp aim of the work is to maintain the appearance of the store. »Ê¹ÚÌåÓýappre is no change to the size of the sales area.

»Ê¹ÚÌåÓýapp question to ask is whether, looked at in the round, the work resulted in a restoration of what was there before, or did it create something new?

In this case, the property may have been gutted and modernised but the character of the asset remained unchanged. Looked at from the point of view of how the building was used, the work was simply a restoration to enable it to be used to do the job it had long been used for.

»Ê¹ÚÌåÓýapp position would have been different, had the work changed the character of the asset, for example if it had created a larger sales area.

»Ê¹ÚÌåÓýapp exception is the electrical system. An electrical system of a building or structure is an integral feature. As the whole system was replaced, this is treated under the integral features rules as capital expenditure qualifying for capital allowances at the special rate. For more information on the point, see CA22300 onwards.