B2.307 Assets giving an enduring benefit
One of the early, and often quoted, statements illustrating the character of capital expenditure was made by Viscount Cave LC in British Insulated and Helsby Cables1. He said:
'But when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly attributable not to revenue but to capital.'
This has become one of the key tests that is applied in distinguishing between capital and revenue expenditure for tax purposes. Thus, in that case, a lump sum paid by a company to establish a pension scheme for its staff was held not to be admissible as a deduction.
It is not, however, always necessary to find an asset whose existence is attributable to the expenditure in question. For instance, a lump sum payment by a borrower for release from restrictions imposed by the terms of a capital loan has been held to be capital2.
In determining whether an asset or advantage is of 'enduring' benefit, HMRC does not generally apply any simple measure of time endured before regarding it as capital, although this may be one of several important factors. Other considerations are taken into account, such as how the asset or advantage functions in the context of a particular trade, how it