Repairs are among the easiest costs to post and among the most frequently challenged. The question is always the same: did the work put the asset back to how it was, or did it make it better or replace it? The first is a revenue expense in the profit and loss account; the second is capital and goes to the balance sheet.
The tests in practice
| Work done | Usual treatment | Reasoning |
|---|---|---|
| Replacing broken roof tiles | repair | restores the roof |
| Replacing the whole roof with the same specification | repair | the building is the asset; the roof is part of it |
| Adding a second storey or an extension | capital | creates something new |
| Replacing single glazing with modern double glazing | repair | like-for-like using current materials |
| Engine rebuild on a van | repair | restores the vehicle |
| Replacing a machine that has worn out | capital | the whole asset is replaced |
| Making a newly bought, unusable building fit for use | capital | the price reflected its condition |
Replacing an “entirety” is capital, replacing a part of a larger asset is a repair. Using modern equivalent materials does not make a repair an improvement. HMRC’s Business Income Manual covers the case law.
Accounts to use
- Repairs and maintenance – premises: decorating, plumbing, electrical repairs, roof repairs.
- Repairs and maintenance – equipment: servicing and fixing machinery, IT hardware repairs.
- Motor repairs and servicing: usually within motor expenses so vehicle running costs are seen together.
- Maintenance contracts: annual service agreements, often prepaid and spread through prepayments.
Capital work goes to the relevant fixed asset account and is depreciated.
A mixed invoice from a builder
A builder invoices £18,000 plus VAT for a shop: £5,000 for repairing water damage to walls and floor, and £13,000 for a new partition and storeroom.
| Account | Debit | Credit |
|---|---|---|
| Repairs and maintenance – premises | £5,000 | |
| Leasehold improvements (cost) | £13,000 | |
| Input VAT | £3,600 | |
| Trade creditors – builder | £21,600 |
Ask the builder to itemise the work. Without a breakdown, the split is a guess that is hard to defend.
No provisions for future repairs
FRS 102 does not allow a provision for repairs the business plans to carry out next year, because there is no present obligation until the work is done. Major overhauls that recur, such as a periodic refit, can be recognised as a separate component of the asset and depreciated over the period to the next overhaul. Dilapidations under a lease are different: they are a real obligation to the landlord and can require a provision.
Common errors
- Coding a new piece of equipment to repairs because it “replaced the old one”.
- Expensing improvements to rented premises; they are leasehold improvements.
- Missing that a repair on a newly acquired building was needed before it could be used.
For capitalised work see fixed assets in the chart of accounts and the capitalisation policy for fixed assets.