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HMRC internal manual

Business Income Manual

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HM Revenue & Customs
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Capital/revenue divide: introduction: it is a question of law

Whether expenditure is capital is ultimately a question of law to be determined in the light of the facts of an individual case. See the quote from Lord Denning in Heather v P E Consulting Group Ltd [1972] 48TC293 at BIM35210. There is, however, no single test to be applied in distinguishing capital from revenue expenditure. Rather, the authorities identify the way to approach issues of this kind and the factors that are relevant. Lord Macmillan summarised the position in Van den Berghs Ltd v Clark [1935] 19TC390 (see BIM35530) at pages 428-429:

‘While each case is found to turn upon its own facts, and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem.’

You should not accept that the question is one to be determined by accountancy evidence. Accountancy evidence may be informative but it is not determinative. Where tax law and accountancy come to different conclusions, tax law takes precedence.