Sarah Bradford explains the difference between revenue expenditure and capital expenditure and how the tax system provides relief for different types of expenditure.
As far as the tax system is concerned, not all types of expenditure are equal; a distinction is drawn between revenue expenditure and capital expenditure. This distinction is important as it determines the extent to which and the way relief for the expenditure, if any, is given.
For capital expenditure, it is also necessary to take into consideration how the accounts are prepared, as different relief mechanisms apply to the ‘cash basis’ and the ‘accruals basis’.
No simple test
One of the difficulties in determining whether a particular item of expenditure is revenue rather than capital expenditure is that there is no single,