Are my costs Capital or Revenue expenditure? Reply

Stress business woman

It makes a big difference to your tax whether you can offset costs as revenue expenditure or remove costs because they are capital expenditure

HMRC published a guide on this in September 2016 and have circulated in in their Agent Alert Self Assessment Special January 2016.

https://www.gov.uk/government/publications/hmrc-capital-vs-revenue-expenditure-toolkit

The Toolkit is really useful and covers lots of problem areas:

  • Acquisition, improvement and alterations to assets – highly relevant to property investors
  • Legal and Professional – including how to handle unsuccessful property purchases – which are a capital cost – and Business Owner Training Costs
  • Finance Costs
  • IT Costs – including websites
  • Intangible assets – such as Goodwill

steve@bicknells.net

Is my Grant Capital or Revenue? 1

Businessman With Gold Bar

A grant is an amount of money given to an individual or business for a specific project or purpose.

You can apply for a grant from the government, the European Union, local councils and charities.

Advantages include:

  • you won’t have to pay a grant back or pay interest on it
  • you won’t lose any control over your business

Financial assistance in the form of grants is subject to the normal taxation rules, as supplemented by S105 Income Tax (Trading and Other Income) Act 2005 and S102 Corporation Tax Act 2009 (see BIM40465). Under normal rules the tax treatment of grants will depend on whether they are capital or revenue.

Revenue grants

Grants which meet revenue expenditure, such as interest payable, are normally trading receipts.

See also Smart v Lincolnshire Sugar Co. Ltd [1937] 20TC643 and Burman v Thorn Domestic Appliances (Electrical) Ltd [1981] 55TC493.

Capital grants

Grants which meet capital expenditure are normally not trading receipts.

Grants that may be capital in nature include those paid to acquire capital assets or to facilitate the cessation of a trade or part of a trade.

See The Seaham Harbour Dock Co. v Crook [1931] 16TC333).

A capital grant reduces any qualifying capital expenditure for capital allowance purposes, see CA14100.

See BIM40451 for more details

The Accounting Rules are set out in section 24 of FRS102, neatly explained by Steve Collings in his blog, click here to read it

steve@bicknells.net