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 may be pragmatic to avoid drawing a distinction where any capital element would qualify for immediate full relief under the annual investment allowance or a 100% first-year allowance. In that case, the immediate tax relief may be the same. However, the classification can still affect eligibility, claim requirements and the treatment of a later disposal.

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 capital, it is possible that it qualifies

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