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Single glazing replaced with double glazing

Single glazing replaced with double glazing - capital or revenue

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I have a client who rents out several farm cottages which currently all have single/secondary glazing.  She is planning to upgrade all of the windows in all of the cottages to double glazing in order to improve the energy efficient rating of the cottages. 

The questions is, will the cost of this work be capital or revenue expenditure ? 

As I understand it, the work will not include the replacment of the window frames, but only the glazing within the window frames. 

My client has latched onto BIM46925 which includes the following statement,and from this has concluded that the work will be tax deductible  : 

At one time, replacing single glazed windows with double glazing was an improvement. Over time, double glazing became the industry norm. This meant that replacing single glazing with double glazing ceased to be an improvement, and capital expenditure, and became allowable expenditure for tax purposes as it was simply replacing like with currently available like.

 My interpretation is that the cost is a capital expense as the existing windows are in a good state of repair and the only the glazing is being changed. 

Advice please.

 

 

 

 

 

 

Replies (66)

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By 356B
27th Jul 2021 10:42

Why would you disagree with HMRC's interpretation?

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Replying to 356B:
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By L Haldane
27th Jul 2021 10:57

Because within BIM46925 it also states:

'the use of new technology as part of a repair does not necessarily mean the repair becomes an improvement'

and as I see it, the existing windows are in good order and are functioning as well as could be expected for single/secondard glazed windows and are therefore not being repaired but are being upgraded.

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Replying to L Haldane:
paddle steamer
By DJKL
27th Jul 2021 11:05

Does not necessarily mean the "repair becomes an improvement" not the "improvement becomes a repair"; I think you are maybe reading this back to front.

And if I only replace the glazing not the whole window that to me is even more of an indication of a revenue expense.

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Replying to DJKL:
Scooby
By gainsborough
27th Jul 2021 11:10

I agree with DJKL's comments and would also view this as a revenue expense.

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By thomas34
27th Jul 2021 11:11

You seem to contradict yourself in your last two paragraphs. The general rule is that if present day technology means an improvement for the user of the item it doesn't preclude the taxpayer claiming as a revenue expense. A sensible and practical policy by HMRC (for a change).

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Lone Wolf
By Lone_Wolf
27th Jul 2021 11:11

I agree with your client, the cost will be tax deductible.

You have an open goal for a tax deduction here and you seem to be over thinking it in order to add the amount back. Even HMRC will accept it is a repair.

I take it from your comments that you have inspected the windows and know they are in "good order". No signs of wear, energy efficient, no draft getting in or leaks?

You're in danger of going to the dark side L Haldane :P

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Replying to Lone_Wolf:
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By L Haldane
27th Jul 2021 11:47

Believe me, I have my client's best interest at heart, but there is also a professional responsibility to make the correct call within the legislation.

The cost of this work has been quoted around £40k so we are not talking a minor repair here and I don't want to get this wrong.

As I see it, the prerequisite to being able to claim the cost as revenue is there must be a repair and I am stuggling to see a repair here.

The primary reason my client is doing this work now, when the windows are still in good order, is to mitigate a higher-rate tax bill as she has had a one-off taxable 'wind fall' this year and is facing a significant tax bill. She sees this as a one-off opportunity to save 46% (Scottish tax) on the cost of this work which will improve the energy rating for her properties and enable her to increase her rental income.

I would be delighted to confirm to my client that the work is tax deductible, but given the facts I am doubtful.

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Replying to L Haldane:
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By L Haldane
27th Jul 2021 12:03

I have also looked at BIM35455 which states that :

'the approach to take is to look at the asset and see what the result of the work is:

has the asset been altered or improved - capital expenditure,
or
has it simply been repaired so as to do the same job that it was doing before - allowable revenue expenditure.

The fact that different materials have been used is, of itself, unimportant. The key was that ‘the result of this work was not to produce something new but to repair something which had previously existed’

As I see it , this reinforces that there must be a repair for the expense to be revenue.

I am the only who thinks HMRC would sees the replacement of single glazing , within the same existing, non-delapidated, window frames as an improvement and therefore a capital expense ?

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Replying to L Haldane:
By ireallyshouldknowthisbut
27th Jul 2021 12:13

You stand alone on this issue.

Double glazing is not really a repair at all. Its just a different type of window.

If the farmhouses are of any historic interest it will probably reduce the market value of the properties due to a loss of character so its hardly an enhancement of capital values, quite possibly the opposite.

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Replying to ireallyshouldknowthisbut:
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By L Haldane
27th Jul 2021 12:18

So, not a repair then ?

and no loss of character. The exact same window frames will reamin in situ.

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Replying to L Haldane:
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By AndyC555
27th Jul 2021 16:21

"The primary reason my client is doing this work now, when the windows are still in good order, is to mitigate a higher-rate tax bill as she has had a one-off taxable 'wind fall' this year and is facing a significant tax bill. She sees this as a one-off opportunity to save 46% (Scottish tax) on the cost of this work"

s117-119 ITA 2007 would be relevant if the cost of window replacement creates a loss which your client is hoping to set against her windfall.

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Replying to AndyC555:
All Paul Accountants in Leeds
By paulinleeds
30th Jul 2021 23:30

Nothing wrong with bringing forward expenditure. It's accepted tax planning in arranging your affairs to reduce tax.

The amount of the repair is not a reason to make it capital.

It's the nature of the expenditure that is important.

It's a repair.

You don't have to wait until something is broken to repair/maintain it.

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By ireallyshouldknowthisbut
27th Jul 2021 11:41

Repair.

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By AndyC555
27th Jul 2021 12:33

Repair.

What you had before were cottages with windows considered standard for that time. What you will have after will be cottages with windows considered standard for today.

A cottage with standard windows will be a cottage with standard windows. So there's no change to the character of the asset. The 'improvement' is brought about by changes in building techniques.

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Replying to AndyC555:
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By L Haldane
27th Jul 2021 12:57

I agree with what you say, but where is the repair ?

As I understand a repair is to make good a delapidation.

Therefore the tax deductibility of the work hinges on the current state of repair of the windows and must not be confused with the fact that single glazing is, by its very nature, less efficient than double glazing.
If the existing windows are in a good state of repair and are working as well as could be expected for single glazed windows, then surely replacing the single glazed panes with double glazed panes, within the same existing window frames, will be capital expenditure as there is no repair in this case.

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Replying to L Haldane:
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By AndyC555
27th Jul 2021 13:16

If your client decided to repaint the walls in one of the cottages even though the paint was probably good enough for another couple of years, would you consider that capital?

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Replying to AndyC555:
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By L Haldane
27th Jul 2021 13:42

Other than poking fun at my deliberations I don't see the point of your question as one coat of paint does the same job as another, unlike double glazing which has discernably different qualities to single glazing.

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Replying to L Haldane:
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By AndyC555
27th Jul 2021 16:02

I wasn't poking fun, but providing a comparison. You are saying that because the replacement of the windows isn't strictly necessary, it changes it from a revenue item to capital but that isn't the test.

Lots of expenditure might not be strictly necessary but that doesn't change its nature. There is no 'necessarily' test. It's W&E for the purposes of the business.

If you look at the two examples in BIM46925, HMRC do not ask the question "was this expenditure necessary".

The test is whether the expenditure amounts to an improvement and as HMRC's own manuals say, single to double glazing IS treated as like for like. What was standard then, what is standard now. Conn v Robins Bros Ltd.

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Replying to L Haldane:
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By rmillaree
27th Jul 2021 20:08

", unlike double glazing which has discernably different qualities to single glazing."
As mentioned before though hmrc are specifically telling you to treat double glazing as single glazing - they can't be much clearer than the following from the full link posted below below by another poster!

One example of this is double glazing. At one time, replacing single glazed windows with double glazing was an improvement. Over time, double glazing became the industry norm. This meant that replacing single glazing with double glazing ceased to be an improvement, and capital expenditure, and became allowable expenditure for tax purposes as it was simply replacing like with currently available like.

Thanks (1)
Replying to AndyC555:
Scooby
By gainsborough
27th Jul 2021 13:56

....and those who replace bathroom suites and kitchens on a like-for-like basis - despite the old kitchen/bathroom still being useable in that capacity? See also the example at BIM46915 where A Ltd decides to "modernise their premises".

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Replying to L Haldane:
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By john hextall
28th Jul 2021 12:42

Although the windows may seem to be in good condition, from the point of view of energy efficiency and fighting climate change, they are in need of repair. HMRC could in no way argue otherwise, given our 'commitment' to the various climate treaties of the last 20 years. The current single glazing is clearly inadequate no matter how nice it looks.

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By Rweaver
27th Jul 2021 12:48

Aside from the rented cottages, is your client also a tax adviser?

Sounds like they know what they're doing.

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paddle steamer
By DJKL
27th Jul 2021 12:53

Just as an aside, is this replacing single glazing with say 6mm double glazing (typical conservation zone upgrade)? If so either there are a lot of windows, the client is getting overcharged or quite a lot of the £40k cost is likely in refurbing the original sash and case windows (as no point fitting double glazed panes if windows still rattle in their casements)

I know from my own house that were I to upgrade (conservation area) the big cost would be repairing/tightening the frames rather than the actual glazing panels themselves.

Irrespective I think what your client has is repairs.

If in doubt get them to walk around with a bag of stones, a camera and a strong arm just prior to the new glass being fitted.

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Replying to DJKL:
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By Hugo Fair
27th Jul 2021 13:00

Muttley says "He! He! He!"

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Replying to DJKL:
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By hfiddes
28th Jul 2021 13:09

Darn you beat me to it - I was going to suggest enlisting the support of some local youths with too much energy ;)

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By Wycher
27th Jul 2021 14:37

I also vote repair assuming the £40k cost is realistic (it does seem very high, is it a scottish estate house by any chance). In reality how are HMRC going to know the windows did not need replacing (potentially preventing future higher costs), in fact how can you know they do not need replacing? Spending £40k just to avoid £18.4k of tax would suggest that the work clearly needs to be done at some point its just beneficial to do it now.

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By Roland195
27th Jul 2021 15:05

I can see where you are coming from in that the motivation here does not seem to be to address an immediate need to put right an issue with a particular window/windows but to improve the rental value by increasing energy efficiency with additional tax benefits arising from the timing.

My own view is that the tax planning issues aside, the expenditure is still a repair, if in advance of an imminent need.

Do you not have any young relatives who might like to take up cricket?

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By whitevanman
27th Jul 2021 16:47

It would perhaps be better if one did not seek to consider whether the expenditure is on "repairs" or "capital". The statutory test is whether it is capital or revenue.
It is not for HMRC to dictate how a business owner should conduct his/her affairs. Some will choose to keep assets in tip-top condition whereas some will use the asset "as is" until such time as there is no alternative but to spend money. The exercise of such personal choice is irrelevant. The fact is that the business owner has decided to follow a course of action because that suits his/her business model. It is perhaps, better to consider the expenditure as on the "maintenance"of the asset because that is a neutral term and avoids the "repairs" issue (it cannot be a repair if it wasn't broken).
The only question is whether what is spent is on capital or revenue account and, as has already been said, HMRC accept that replacing single glazing with double glazing should be treated as a revenue expense.
I don't say that HMRC are entirely correct on this (but why should one wish to argue?) but I suspect their position is influenced by at least 2 things.
Firstly the courts have held that replacing old technology with new is not capital.
Secondly, this has been HMRC's position since at least the late 1970's and was probably influenced by the governments desire to bring housing generally into the 20th century.

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By More unearned luck
27th Jul 2021 17:29

I agree with you that replacing single glazing with double glazing is an improvement. To a lesser extent I think the same applies if the double glazing is replacing a combination of single and secondary glazing. If the tax in question was CGT I would prepare the client's returns on that basis. But it isn't; the tax is IT. HMRC have a concession or view of the law that says that they consider the expenditure to be revenue and I would claim IT relief.

I don't see anything wrong with the timing either - ie spending the money in a year when it gives the greatest relief. Would you have not claimed relief on (extra) pension contributions if the client had instead decided to do that in order to mitigate the tax bill? I don't agree with your view that repairs aren't repairs if the thing is in good order. Car timing belts are replaced long before they are likely to fail but that does not stop relief being due on the cost. Claiming the cost of redecorating solely because the taxpayer is bored with the décor is also unobjectionable.

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By suepg
27th Jul 2021 19:47

To quote BIM46925 - Specific deductions: repairs & renewals : what is a repair: changing technology

In the same way as the use of more modern materials does not necessarily mean work is an improvement (see BIM46920), the use of new technology as part of a repair does not necessarily mean the repair becomes an improvement.

In such circumstances, the position is that:

the work is a repair and not an improvement if after the work is carried out, the asset can just do the same job as before;
the work is an improvement and disallowable, as it is capital if, as a result of the work, more can be done with the asset, or the asset can be used to do something that it could not do before.

When the work is done can be important in deciding whether changes in technology have led to an improvement. As technology changes over time, something that would be accepted as an improvement in year one may by year five be simply a repair. This is because that technology is no longer seen as an improvement and is simply what is used for the job; it has become the industry standard for that type of work. Using that technology does not change the character of the building.

One example of this is double glazing. At one time, replacing single glazed windows with double glazing was an improvement. Over time, double glazing became the industry norm. This meant that replacing single glazing with double glazing ceased to be an improvement, and capital expenditure, and became allowable expenditure for tax purposes as it was simply replacing like with currently available like.

I think your client is well prepared to take steps to deal with her impending tax liability - good planning!

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By SteveHa
28th Jul 2021 09:04

During my HMRC days, more than 20 years ago, replacing single glazed windows with double glazed was used as an internal example of something that is NOT an improvement.

Nothing has changed since - it's revenue.

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Replying to SteveHa:
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By L Haldane
28th Jul 2021 10:00

I agree, but my client is not replacing the WINDOWS, they are only replacing the GLASS.

There is currently nothing wrong with the single glazed panes of glass which are in perfectly good order and functioning as well as could be expected for single glazing. My client has has the good furtune to be in the right place at the right time to benefit from a wind fall in another business venture and is chosing to use her money to replace the glass in her rental properties to IMPROVE the energy efficiency rating of the properties and thereby increase the rents.

I completely understand that if the whole windows (frames and all) were being replaced there would be no question of the upgrade from single to double glazing being an improvement, but that is not what is happening here. It is ONLY the glass that is being changed when it is not in need of repair.

In everything I have read in the HMRC tax manuals, the question of whether an improvement derived from the use of modern technology can be allowed as a revenue expense boils down to the modern materials being used AS PART OF A REPAIR.

As there is no repair being undertaken in this case I cannot see how this work meets the criteria set out in tax manuals to enable it to be deducted as a revenue expense.

I am beginning to wish I had never posted this question as I am coming out of this appearing to be a villan when all I am trying to do it to keep my client on the right side of the legislation.

I hear what everyone has said thus far, but I am not sure that everyone is getting the subtlety of the facts that the windows are not being replaced.

I would love to be able to tell my client that there is no doubt about the tax deductibilty of the work she is planning, but I do not want to be left holding the baby if this is the wrong call.

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Replying to L Haldane:
By SteveHa
28th Jul 2021 10:20

L Haldane wrote:

I agree, but my client is not replacing the WINDOWS, they are only replacing the GLASS.

I hear what everyone has said thus far, but I am not sure that everyone is getting the subtlety of the facts that the windows are not being replaced.

The glass IS the windows. The frames are what hold the windows in place. I see nothing in this scenario that differentiates it from what everyone else has said.

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Replying to L Haldane:
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By whitevanman
28th Jul 2021 10:21

I tried to reply yesterday but it seems to have got lost with the reviewers, so I will try again.
I think the problem is that you are looking at it as if the expenditure must be either "repairs" (allowable) or "capital" (not allowable). That is the wrong test.
The case law (so far as relevant) distinguishes only "capital" and "revenue" expenditure.
It is not for HMRC to tell business owners how to conduct their businesses. One owner might like to keep assets in tip-top condition. Another may wait until it is absolutely essential before doing any "maintenance" (to use a neutral term).
The timing etc is a business decision.
For tax it is simply a question of legislation and case law. In the current example, the question is whether it is capital or revenue.
In that connection, any "alteration" is (probably) capital. So two bits of glass instead of one is capital. However, that is not what the courts have held and (perhaps) more importantly, is not how HMRC interpret/apply it. As others have pointed out, their guidance and long-standing practice (back to the 1980's at least) is to treat DG as a direct replacement for SG. It is the modern (20th century!) equivalent.
I think 2 of the reasons for their approach were:
First the courts view on use of modern materials; and
Second, the governments desire to see housing stock particularly, brought to a "modern" standard.
The reasoning is largely irrelevant. It is how they apply the law.

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Replying to L Haldane:
paddle steamer
By DJKL
28th Jul 2021 10:22

When one is not replacing the entirety but merely a part how can the works not be considered repairs to the whole? If in real doubt then, as I suggested earlier, smash them all first.

(Regarding baby holding, how many windows in total are there in these cottages such that £40k is needed, how large are the windows? My bigger concern with the £40k bill, unless there are so many cottages they stretch to infinity, would more be whether the client is trying to slip some other non cottage works in purporting, in collusion with the tradesmen, that they are for the cottages? )

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Replying to L Haldane:
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By Roland195
28th Jul 2021 10:40

L Haldane wrote:

I would love to be able to tell my client that there is no doubt about the tax deductibilty of the work she is planning, but I do not want to be left holding the baby if this is the wrong call.

I think you may be in more danger of a complaint/PI claim here if you continue to advise advise against this in this particular instance.

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Replying to L Haldane:
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By More unearned luck
28th Jul 2021 10:56

OK, a scintilla of your doubt is reasonable, but not much more. Tell your client that if he wishes to claim the cost then there should be a note in the white space giving the explanation of why he thinks the expenditure is allowable. This should assuage your conscience and allow you to complete the return how he wants you to do.

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Replying to More unearned luck:
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By More unearned luck
28th Jul 2021 11:00

And well done for not giving in to peer pressure.

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Replying to More unearned luck:
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By Wanderer
28th Jul 2021 11:03

Not sure I'd do that. Doesn't it suggest an element of doubt as to the allowabilty in the taxpayer's mind?

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Replying to Wanderer:
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By Tax Dragon
28th Jul 2021 11:25

Wanderer wrote:

Doesn't it suggest an element of doubt as to the allowabilty in the taxpayer's mind?

No.

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Replying to Tax Dragon:
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By Wanderer
28th Jul 2021 11:33

Personally I think it does. Particularly as it's been suggested it's only there to assuage the conscience of the agent. The taxpayer appears quite clear of the allowability, in line with HMRC stated opinion.
I wouldn't do it in this situation.

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Replying to Wanderer:
Scooby
By gainsborough
28th Jul 2021 11:32

I usually add a white space disclosure where the expenditure is particularly large and in this case stating that single-glazed panes are being replaced with double-glazing would just agree with HMRC's view.

A paragraph in the cover letter to the client stating that the OP's view is that there is a risk of HMRC challenge should suffice.

I completely agree with whitevanman's analysis "It is not for HMRC to tell business owners how to conduct their businesses. One owner might like to keep assets in tip-top condition. Another may wait until it is absolutely essential before doing any "maintenance" (to use a neutral term)."

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Replying to gainsborough:
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By Tax Dragon
28th Jul 2021 11:53

Exactly. It's simply providing additional information.

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Replying to Wanderer:
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By More unearned luck
28th Jul 2021 20:18

The taxpayer self assesses - he must give himself the benefit of any doubt (although there is little doubt in the case) if he wants relief if it is due. If he claims relief, there are two possibilities:
a) He was right to do so: There is no harm in giving details in the white space.
b) He was wrong to do so: Then the absence of a note makes the claim fraudulent (deliberate) and exposes him to 20 years of uncertainty and to penalties. It was Mr Tooth's "full and frank" disclosure that saved his conduct from being labelled deliberate conduct.

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By 356B
28th Jul 2021 10:23

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46920

The position is that:

the work is a repair and not an improvement if after the work is carried out, the asset can just do the same job as before;

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Replying to 356B:
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By More unearned luck
29th Jul 2021 16:40

Your point does not fit the facts. The new glass is more thermally efficient than the old - it does a better job than before. Everyone else is saying that the expenditure counts as revenue despite being an improvement.

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Replying to More unearned luck:
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By Tax Dragon
29th Jul 2021 17:01

I'm not actually sure whether the glass is being replaced, or is it simply the addition of new panes of glass? (I say 'simply'... that's probably a darn slight harder - and more expensive - than changing the whole window. But the one thing I have noticed we've been told for definite is that it's not a whole-of-window replacement. Which leaves me unsure about what actually is happening.)

Anyway, if you're putting something in that wasn't there before (secondary glazing, shutters, a rain deflector etc), that sounds like an indicator that the expenditure may be capital. So there's a lot of logic in the question - what if the 'new thing' is a pane of glass? (Not that it's relevant, but it sounds costlier than any of the other, capital-sounding, additions. £40k for shutters?!) It's certainly a better question than some seem to have understood, or given it credit for.

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Replying to Tax Dragon:
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By More unearned luck
29th Jul 2021 18:16

This depends on what "double glazing" means. I agree it is unclear exactly want work is to be done. But as a layman I think it means two panes of glass bonded together by the manufacturer with a seal that does not permit the ingress of moisture or dirt. Making windows double glazed in the way you suggest is either called secondary glazing or will give a result likely to result in steam on the inside that cannot be wiped. But you are welcome to prove me wrong. I agree it sounds like an extravagant way of doing it - perhaps it's dictated by planning rules for listed buildings.

Yes - I've already said that two panes is an improvement on one. The point is, of course, in that case (but not in the case of shutters, etc) HMRC turn a blind eye.

It a tenanted house has environmentally unfriendly heating system, say, that needs replacing. Like for like the government rewards the landlord with tax relief at his marginal rate, but replacing it, say, with a heat pump the landlord gets no relief.

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Replying to More unearned luck:
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By Tax Dragon
29th Jul 2021 18:38

I've reread (or maybe just read) [more of] the facts the OP has provided. It's not an addition. It's a replacement, with just the frames (presumably sash) retained.

Even I am now bored of this. It does show - your example shows - some of the stupidity within the UK tax system. There's plenty more.

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By birdman
28th Jul 2021 10:38

Maybe you could advise your client to give a local lad £10, a catapult and some ball-bearings?
Seriously, with a specific example given in the HMRC's manual stating that replacing single with double glazing isn't an improvement, no Inspector is going to launch an enquiry on the basis of the exact opposite to that example.
Further, I'd say that single glazing is now so outdated that replacement would be classed as a repair on the basis that a single glazed window is by definition at the end of it's useful life.

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