Ignoring private use and other matters, UK tax law allows abusiness to claim a tax deduction for repair and maintenance costs in full when incurred, as it is reflected as an expense in the accounts. The accounting treatment will be as a revenue cost unless there is “enhancement expenditure”in which case that part of the cost is not revenue but capital and so it does not go through the P&L account and does not reduce profits.
An example might be buying cheaply a time-expired, not currently flying R44 and then getting an overhaul to obtain a legal, working machine. The case law in that area is complex; the previous owner merely deferring some maintenance that would have been “revenue expense” will not create a problem but significant improvement in the asset value compared to purchase, very soon after purchase, will. HMRC manuals deal with this area at BIM35450 and BIM35445 if you need to refer / can’t get to sleep.
Can you claim a tax deduction in advance for the overhaul costthat you know is coming; i.e. make a provision for the cost of the repairs eachhour that you currently fly?
No.
It used to be the case that the anticipated cost of overhauls could – if calculated with sufficient accuracy– form the basis of a provision against profits in the accounts under the then-existing rules (UK GAAP). That provision made in the accounts was allowed by the tax court in a mid-1990’s appeal Johnston (HMIT) v Britannia Airways Ltd. (the case reference is 67TC99). However, accounting rules have changed and applying the concepts introduced by FRS 12 (now contained in FRS 102), even though a business may be required to overhaul its aircraft at a future point in time, and might be able to calculate the cost of so doing with extreme accuracy, there is no present obligation on the business to do so and hence to incur that future cost. So the accounting rules do not any longer allow a business to create aprovision for future overhauls, repairs or maintenance and there is no argument therefore for up-front tax relief.
Last edited by John R81; 26th Sep 2017 at 14:53.