Capital expenditure

Produced by Tolley
Capital expenditure

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

  • Capital expenditure
  • Simplified cash basis
  • Accruals basis
  • Let residential property
  • Summary of available reliefs for residential property businesses
  • Replacement of domestic items relief
  • Replacement of fixtures (case law)
  • Wear and tear allowance (available prior to April 2016)
  • Statutory renewals basis (2015/16 and prior years)

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

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

Simplified cash basis

Where profits are calculated on thecash basis (see theSimplified cash basis for property businesses guidance note), therules for thededuction for capital expenditure mirror those that apply for thecash basis for small trading businesses.

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

  1. capital expenditure on, or in connection with, theacquisition or disposal of a business or part of a business

  2. capital expenditure on, or in connection with, education or training

  3. capital expenditure on, or in connection with, theprovision, alteration or disposal of:

    1. any asset that broadly has a useful life of 20 years or more

    2. any asset not acquired or created for use on a continuing basis in thetrade

    3. a car

    4. land (though certain fixtures qualify, see below)

    5. an intangible asset unless it expires broadly within 20 years

    6. a financial asset

So, essentially, any expenditure falling within theitems 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 generally qualify as a revenue deduction, expenditure on items such as walls, ceilings, doors and windows do not. The capital / revenue distinction is, therefore, still present to a certain extent under thesimplified cash basis.

Accruals basis

Where profits are calculated on theaccruals basis, capital expenditure cannot normally be deducted from property income

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