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HMRC internal manual

Business Income Manual

Capital/revenue divide: computer software: in-house software development costs: summary of further guidance

The penultimate paragraph of BIM35810 indicates that:

  1. expenditure on the development of software for a trader’s own use may be capital if it is part of a “major new project”, but
  2. expenditure which amounts at most to the piecemeal improvement of a computer system that is already in use will be revenue.

The layout of the further guidance is:

  1. BIM35830 provides some guidance on the general approach and analogies with tangible machinery and plant.
  2. BIM35835 to BIM35840 provide guidance on how the task of identifying capital projects should be approached. But you should bear in mind that whether a project is sufficiently enduring and substantial to be reasonably regarded as a capital matter will always turn on the particular facts and circumstances. This will not only include the characteristics of the project but also its place in the operations of the business in question.
  3. BIM35845 considers what is meant by a ‘piecemeal improvement’. Again this is an issue of fact.
  4. BIM35850 to BIM35860 address the further question of what costs associated with an admittedly capital project may be capital.