What is "Capital expenditure"?

dllive

Hi. Can someone tell me the difference and give an example of what Capital expenditure is compared to Business expenditure. Im looking at HMRC's explanation and Im still unclear.
Would a laptop - for example be a Capital expenditure?
Thanks

PlutoinCapricorn

Some items are obviously capital items: a van; heavy machinery, expensive camera equipment ... things that last for years and that could be sold as part of a business.

Some items are obviously business expenses: running costs such as electricity; a packet of envelopes and similar things that get used up; allowable fares...

There is a grey area for some items. For example, I bought a stapler and hole punch many years ago and they are still in use. I put them down as business expenses as they were very cheap. I also put my laptop down as a business expense as it was cheap - you can get some in Toys 'R' us now so they are not major investments! If you earn under approx. £50k and are a sole trader, you just need to give a total figure for expenses not an itemised list. If you have a limited company, I am guessing that you need to be a little stricter. HMRC do free courses where you might get more information.

PlutoinCapricorn

Have you seen this Businesslink page:

http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1073790090&type=RESOURCES

chrismac1

No easy answer here. Much of it is not defined in law, as there are about 150-plus years of cases looking at the split. The ongoing battle between Wetherspoons and HMRC - 5 years plus - is just the latest in a long line of complex cases running over many years.

But for small businesses the good news is that FOR NOW IT DOES NOT MATTER. You get a £25k annual investment allowance.

Suppose you claim £20k of heavy equipment purchases as a trading expense. 90% plus of the time this error makes no difference at all to your tax position, because if you had treated this as capital you'd then have claimed £20k of annual allowances.

CTA_2

chrismac1 wrote: »

No easy answer here. Much of it is not defined in law, as there are about 150-plus years of cases looking at the split. The ongoing battle between Wetherspoons and HMRC - 5 years plus - is just the latest in a long line of complex cases running over many years.

But for small businesses the good news is that FOR NOW IT DOES NOT MATTER. You get a £25k annual investment allowance.

Suppose you claim £20k of heavy equipment purchases as a trading expense. 90% plus of the time this error makes no difference at all to your tax position, because if you had treated this as capital you'd then have claimed £20k of annual allowances.

WARNING - PLEASE DO NOT TAKE ABOVE POST AS AGREED LAW.

Note, the 25k AIA is only available to set against capital expenditure ON PLANT AND MACHINERY. Capital expenditure not qualifying as plant and machinery will not benefit from this allowance and will not be tax deductible (unless other relief is provided).

Capital expenditure is defined by years of case law. This is a helpful starting point, http://www.hmrc.gov.uk/manuals/bimmanual/BIM35000.htm, but tax advisers may spend their careers becoming specialist in this.

I would stick to asking this forum questions on whether particular items of expenditure constitute a revenue or capital expense rather than a wider definition of capital expenditure.

With regard to a laptop, it would almost certainly be capital in nature.