I have just started a new business. What expenses can I claim?
Expenditure can generally be split into two categories - Capital Expenditure and Revenue Expenditure.
Capital expenditure may be defined as "an expense made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of the business".
There are many examples of capital expenditure such as :
- the purchase or alteration of business premises.
- the purchase of plant, machinery or vehicles.
- the initial costs of tools.
Capital expenditure cannot be deducted when calculating your profits, although for many forms of capital expenditure you can claim Capital Allowances against your profits.
Revenue expenditure is an allowable expense in calculating your taxable profit unless it is specifically disallowed in the tax legislation (such as business entertainment). Generally, allowable revenue expenditure relates to the day to day running costs of your business.
Examples of revenue expenditure are as follows:
- Wages and other staffing costs.
- Rent, rates, lighting and heating costs.
- Purchase of goods for resale.
- Replacement of tools.
- Running costs of vehicles.
It can often be difficult to distinguish between capital and revenue costs and this has led to many disputes between the taxpayer and the Inland revenue which have had to be settled in the courts.
If unsure whether expenditure is of a Capital or a Revenue nature or whether it can all (or only partly) be claimed against income, professional advice should be sought.