Business Clinic: Tax efficient farm repairs

Farmers Weekly’s Business expert Mike Butler gives advice on tax issues surrounding repairs on farm and buildings property.

Q: I am looking at making repairs to my farm and buildings property, how do I know this will be allowable as tax deductible expenditure in the year it is incurred?

A: When cashflow permits, farmers will incur large amounts of expenditure on maintaining their premises. Given the usually high level of expenditure this often entails, it can often give rise to enquiries by HM Revenue and Customs (HMRC), particularly when there has been little such expenditure in previous years. 

See also: Business Clinic: Employer liability insurance advice

Mike ButlerMike Butler
Old Mill

The most recent case was Hopegar Properties Limited (2013) where the taxpayer repaired the main entrance of its industrial estate. This included relaying fibre-optic cables, re-landscaping and making changes to an existing car park.

On all the elements the tax tribunal accepted that all the works were of a repair nature because when looking at the entirety of the asset being repaired it was felt that the character of the asset had not changed overall.

Other instances include G Pratt and Sons (2011), this was a case involving a farming partnership which claimed £23,300 on resurfacing 239m of a 280m farm drive as repairs.

After the works the drive was not wider nor was its load-bearing capacity increased and therefore with no significant improvement, it was felt the work was a repair.

The challenge over the years is determining if the property has been significantly improved, and is therefore capital expenditure in nature which could provide capital gains tax relief on disposal of the asset, or returned to a state the asset started in, which would be a repair and provide income tax relief in the year the expense is incurred.

This is obviously quite a “grey area” and requires judgement based on knowledge and experience to assist when considering undertaking works around the farm.

The information provided in these articles does not constitute definitive professional advice and is provided for general information purposes only.

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