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HMRC internal manual

Business Income Manual

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Capital/revenue divide: tangible assets: assets with a short life

In some instances a tangible asset may have a very limited economic life. Where that life is less than one year you should accept that expenditure on it is of a revenue nature.

The case of Hinton v Maden & Ireland Ltd [1959] 38TC391 considered the lifetime of certain knives and lasts used in a shoe making business. If the expenditure on knives and lasts was capital the company became entitled to an additional ‘investment allowance’.

At page 425 Lord Jenkins considered that permanence played a part in determining if expenditure was capital and whilst a period of twelve months was near the line he was prepared to accept such a life as sufficient:

‘The case, therefore, appears to me to turn in the end on the question of permanence, which is largely a question of degree. I think the element of permanence looms larger in the conception of a capital asset than it does in the conception of plant. Nevertheless, I see no reason for holding that the average life of three years possessed by sole knives and making and finishing lasts is too short to justify their acceptance as capital assets. The average life of only 12 months possessed by upper knives seems to me to be near the line, but no attempt has been made to separate these knives and the other appliances, and I do not know whether it would have been practicable to do so.’