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TW Ed picks holes in HM Revenue & Customs' draft update on repairs and renewals in its Business Income Manual.

It has been a very busy week at TW Towers, trying to keep up with HMRC.

There have been numerous press releases – some of them to do with matters other than RTI:

Outstanding Class II National Insurance Contributions are to be “coded out” through PAYE from April 2014. This sheds a ‘whole new light’ on last week’s announcement that HMRC had (apparently) suddenly decided (from 6 April 2013, mind) that ‘sleeping’ or inactive Limited Partners should be liable for Class II National Insurance Contributions. Someone at HMRC deserves a gold star for co-ordinating that. And yet HMRC seems incapable of granting the Small Earnings Exception from Class II NICs automatically.

In amongst this we had an announcement that HMRC is “giving up” – for now – on ESC A19 which should be welcome except that HMRC seems to have neglected to acknowledge that it’s supposed to apply the concession without a claim. Or perhaps everyone at HMRC has just forgotten, as their guidance has changed so frequently that such matters seem to have been overlooked in later versions.

Which leads me to HMRC’s announcement that its Business Income Manual public guidance on repairs and renewals is being updated.  Whether something constitutes an allowable repair or a ‘non-allowable’ improvement is a common source of friction between HMRC and taxpayer/adviser, so any changes or updates in this area are quite significant. This seems to have been prompted by the abolition of the ‘concessionary’ renewals basis – although it would be nice if HMRC acknowledged in its draft that a statutory basis remains.

HMRC has said that its guidance is in draft and is for ‘a general audience’. It’s a good job it’s in draft so hopefully by the final cut they won’t be referencing section BIM46915 to ...BIM46915. More importantly, I very much hope that they give more thought to the draft of BIM46925, and in particular the example relating to double glazing: “At one time, replacing singled glazed windows with double glazing was an improvement.” Here’s a tip: it still is. Simply, I think the point is more that most taxpayers no longer harbour an intention to improve a property when they install double-glazed windows, because they are now the industry standard and they are basically all that is available.  

This could perhaps be forgiven in isolation but Jeff in BIM46920 and Samuel in BIM46935 should feel similarly hard done by. (Jeff because it seems not to matter if the superior performance of his new building materials is merely incidental and Samuel not least because he has to meet a rather demanding combination of conditions in order to claim a deduction). HMRC’s finding against Jeff does not sit well with Conn v Robins Bros Ltd [1966] 43 TC 266 or more recently Christopher Wills [2010] but HMRC has avoided that uncomfortable truth by omitting any case references whatsoever - throughout.

It might be argued that general taxpayers do not want case references which they cannot access in full but it worries me that HMRC’s technical advisers rely so heavily on these Manuals as “gospel”, to the point where in my own experience – and others’ – some of them refuse to consider either case law or statute beyond. Let’s hope that the updated guidance aimed at Tax Professionals is less disconcerting.

Regards all,

TW Ed