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HMRC internal manual

Capital Allowances Manual

General: Definitions: Capital expenditure and capital sums

CAA01/S4 & CAA01/S572 (3)(b)

An amount that the payer can treat as a deduction in computing business profits or which can be allowed as a deduction from the taxable earnings of an employment or office held by the payer is not capital expenditure.

An amount that is treated by the recipient as a business receipt or employment income is not a capital sum.

Annual payments from which tax should be deducted under ITA/Chapter 6 Part 15 or s906 are not capital expenditure or capital sums.

If property is exchanged or if a leasehold interest is surrendered for valuable consideration the transaction is treated as a sale. Where the consideration is not in money, the part of it that would have been a capital sum if it had been paid in money is treated as a capital sum.

The purchase price of an asset sometimes includes VAT. If the VAT is allowable as input tax (see BIM31500 onwards) it should be deducted from the capital expenditure. In all other cases, the VAT paid should be included in the capital expenditure.

If expenditure on the provision or construction of an asset was revenue expenditure and the asset is later permanently appropriated to fixed assets WDAs may be given. The expenditure that qualifies for WDAs is the original expenditure incurred and not the market value of the asset at the time of the appropriation. You should not accept that an asset has been permanently appropriated to fixed assets unless you are satisfied that any profit on sale would be capital rather than revenue.