Under FRS 102 the costs of day to day servicing of an asset, mainly labour, consumables and small parts, go to the profit and loss account when incurred. Spending that replaces a significant part of an asset, pays for a required major inspection, or gives the business future benefits it would not otherwise have is added to the asset’s cost, and the carrying amount of any part replaced is written off. The accounting answer does not decide the tax answer, which follows its own capital and revenue rules.

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What does FRS 102 say about spending on assets already in use?

Section 17 does not have a separate rule for repairs. Instead, every cost is tested against the recognition principle in paragraph 17.4: it is added to the asset only if it is probable that future economic benefits associated with it will flow to the business and the cost can be measured reliably. Three specific rules then apply that principle to spending after acquisition:

  • Day to day servicing (paragraph 17.15). These costs are recognised in profit or loss in the period they are incurred.
  • Replacement parts (paragraph 17.6). Where parts such as the roof of a building need replacing at intervals, the cost of the replacement is added to the asset if it is expected to provide incremental future economic benefits. The carrying amount of the part replaced is derecognised.
  • Major inspections (paragraph 17.7). Where regular major inspections are a condition of continuing to operate an asset, such as a bus, the cost of each inspection is capitalised and whatever remains of the previous inspection’s cost is derecognised.

The international standard gives a helpful description of the first category. IAS 16 paragraph 12 says day to day servicing costs are primarily labour and consumables and may include small parts, and that their purpose is often described as repairs and maintenance. The broader rules on cost and depreciation are covered in FRS 102 Section 17.

Why does the choice of component decide so much?

Whether spending is a repair depends on what the asset is. Paragraph 17.16 requires a business to split an asset into its major components where they are consumed in significantly different patterns, and to depreciate each separately. IAS 16 paragraph 9 makes the same point from the other side: the standard does not prescribe the unit of measure, so judgement is needed.

If a factory’s roof is a separate component, replacing it is replacing an asset: the new roof is capitalised and the old one, probably close to fully depreciated, is removed. Fixing a few slipped tiles on the same roof is servicing. The same logic applies to a lift, a heating system or the engine of a vehicle. A business that chose sensible components when it bought the asset will find most later decisions straightforward.

Paragraph 17.6 still applies where the asset was not split. The replaced part is derecognised whether or not it was depreciated separately, and if its carrying amount cannot be identified, the current cost of the replacement can be used as a proxy for the original cost, adjusted for depreciation and impairment.

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When does spending count as an improvement?

The wording in paragraph 17.6 is incremental future economic benefits. In practice accountants ask whether, after the work, the asset will produce more than it would have done had it simply been kept in its existing condition. Useful questions are:

  • Does the asset now have more capacity, for example more floor area, more output per hour or a higher load rating?
  • Will it last materially longer than the life currently used for depreciation?
  • Does it now do something it could not do before?
  • Has a significant part been replaced in full rather than patched?

A yes to any of these points towards capitalisation. Work that only restores the asset to the standard it was at, or keeps it running for its expected life, is servicing. Very small items may be expensed anyway under a capitalisation threshold, provided the total effect is not material.

How would a year’s spending be treated?

Illustration only. A manufacturer owns a factory bought 20 years ago and depreciated as a single asset over 50 years. During the year it spends the following:

Spending Cost £ Treatment
Annual boiler service and safety checks 800 Expense: day to day servicing
Replacing broken windows on a like for like basis 1,200 Expense: servicing of the building
Repainting the loading bay 5,000 Expense
Replacing the entire roof 60,000 Capitalise; derecognise the old roof
Installing a mezzanine floor for extra storage 45,000 Capitalise: new capacity

The roof was never recorded separately, so the company uses the proxy in paragraph 17.6. Treating £60,000 as the original cost of the old roof and applying the building’s depreciation rate, 20 of 50 years have passed, leaving an estimated carrying amount of £36,000. That amount is written off as a loss on derecognition, and the new roof of £60,000 is added. Had the roof been set up as a 20 year component from the start, it would already be fully depreciated and nothing would need writing off. That difference is why component choices are made at acquisition.

The mezzanine floor creates space the building did not have, so it is an addition to the asset, depreciated over its own useful life from the date it is available for use (paragraph 17.20).

What happens to depreciation after the work?

Paragraphs 17.19 and 17.23 require a business to review useful lives, residual values and depreciation methods when there are indications of change, such as a change in how an asset is used, and to account for any change as a change in accounting estimate under paragraphs 10.14D to 10.18. Major work is often that indication. If refurbishment extends the life of a building, the remaining carrying amount is spread over the revised life from the current year; earlier years are not restated. The difference between a change in estimate and an error is explained in accounting policies, estimates and errors.

Micro entities using FRS 105 follow the same approach: paragraph 12.5 deals with replacement parts, paragraph 12.6 with major inspections and paragraph 12.14 sends day to day servicing to profit or loss.

Does the accounting treatment decide the tax position?

No. HMRC’s Business Income Manual at BIM46905 says it is a tax question whether expenditure on repairs is capital or revenue and accountancy practice has no role in deciding the answer. Tax looks at the whole asset, or entirety, and asks whether the work restores it or improves or replaces it; those tests are covered in capital or revenue expenditure and, for landlords, repairs or improvements on a rental property.

The two systems can therefore disagree. Replacing a roof is capitalised as a component for accounts purposes, but for tax the roof is usually part of the building, so HMRC may accept the cost as a repair. Where expenditure is revenue for tax, the same manual page says relief follows the accounts: if the cost has been capitalised and is released to profit or loss over time, the deduction is given as it is charged. BIM42215 confirms that calling revenue spending capitalised does not turn it into capital expenditure.

Integral features are a statutory exception. Under section 33A CAA 2001, as CA22340 explains, spending on replacing more than 50% of an integral feature such as an electrical or heating system within 12 months is treated as capital, qualifying for allowances at the special rate rather than as a revenue repair; see integral features and the special rate pool.

What mistakes come up most often?

  • Capitalising a replacement without writing off the carrying amount of the part it replaced, so the asset is counted twice.
  • Expensing a major replacement because the bill was described as repairs.
  • Capitalising routine maintenance contracts to improve reported profit.
  • Not revisiting the useful life after a refurbishment.
  • Assuming the tax computation can simply follow whatever was capitalised in the accounts.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.