Chris Thorpe gives an overview of the capital v revenue battle lines.
When running a business and looking at which expenses to set off against turnover to calculate taxable profits, it’s important that those expenses should be revenue in nature – rather than capital. It sounds obvious but there are several grey areas where it is anything but obvious whether the subject of expenditure was revenue or capital in nature.
Repairs
An oft-encountered issue, especially with regard to property, is whether a repair is revenue (as repairs are) or whether it is an improvement (i.e., a capital expense). Generally, if a replacement is made of a part of an asset, it will be regarded as a repair and thus allowable for income tax (Samuel Jones v. CIR (1951) 32 TC 513). If, however, a replacement represents the whole (or a substantial part) of the asset, then it will be capital
