Capital vs revenue expenditure

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance

Capital vs revenue expenditure

Produced by a Tolley Owner-Managed Businesses expert
Owner-Managed Businesses
Guidance
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Expenditure of a capital nature is not allowed as a deduction when calculating trading profits. Expenditure of a revenue nature is allowable provided there is no specific statutory rule prohibiting a deduction and the expenditure also satisfies the wholly and exclusively test. See the Wholly and exclusively guidance note.

The distinction between capital and revenue can be incredibly difficult to make. In some cases it will be impossible to categorically determine whether expenditure is an allowable deduction.

Sometimes it is better to avoid drawing a distinction, if possible. For example, where any capital element is potentially covered by the annual investment allowance or first year allowances (FYAs) for companies, there is no benefit to be gained from spending time analysing the potential for being able to treat the expense as revenue. The amount of tax relief would ultimately be the same.

The focus should be on items of expenditure which will not be eligible for capital allowances, such as certain legal expenses or extraordinary expenditure.

If it is determined that the expenditure is in fact

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