Capital expenditure

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Capital expenditure
  • Simplified cash basis
  • Accruals basis
  • Let residential property

From 2017/18, a simplified cash basis of calculating profits can apply to small unincorporated property businesses, see the Simplified cash basis for property businesses guidance note. From 2017/18, there are therefore two different regimes for capital expenditure depending upon whether the business profits are calculated under the simplified cash basis or not.

There are also special rules that apply to let residential properties ― these rules apply where profits are calculated under the cash basis or the accruals basis.

Simplified cash basis

Where profits are calculated on the cash basis (see the Simplified cash basis for property businesses guidance note), the rules for the deduction for capital expenditure mirror those that apply for the cash basis for small trading businesses.

ITTOIA 2005, s 307B

Under these rules, all capital expenditure is allowed as a revenue deduction unless it falls within a list of excluded expenditure. This list includes:

  • capital expenditure on, or in connection with, the acquisition or disposal of a business or part of a business
  • capital expenditure on, or in connection with, education or training
  • capital expenditure on, or in connection with, the provision, alteration or disposal of:
    • any asset that broadly has a useful life of 20 years or more
    • any asset not acquired or created for use on a continuing basis in the trade
    • a car
    • land (though certain fixtures qualify, see below)
    • an intangible asset unless it expires broadly within 20 years
    • a financial asset

So, essentially, any expenditure falling within the items above will be disallowed as capital expenditure. All other capital expenditure would be allowable as a revenue deduction.

From this list above, it can be seen that although expenditure on fixtures would

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