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HMRC internal manual

Business Income Manual

Cash basis: expenses: capital expenditure

S33A ITTOIA 2005, S1(4) CAA 2001

In calculating the profits of a trade on the cash basis, payments for plant and machinery which would ordinarily qualify for capital allowances are treated as an allowable business expense. No capital allowances are therefore available in respect of the plant and machinery.

There is an exception for payments relating to the provision of a car. Such payments are not allowable as an expense when calculating cash basis profits, and capital allowances continue to be available provided the business mileage rate (see BIM75005) has not been claimed on the car. See CA23535 for an outline of the capital allowances rules on cars.

All other capital expenditure is disallowed under S33A ITTOIA 2005.

Capital Gains Tax

There are rules in place to ensure that there is no double taxation of capital gains arising on disposal of plant or machinery when a cash basis election is in force and that no gain escapes tax on transition into or out of the cash basis regime. The rules also mean that tax relief is given only once for any loss. For further information see CG15470 onwards.