Chapter 4 - 2.4 - Capital Expenditure

Question 1

Expenditure on, or relating to, capital assets is…

Answer 1

Not allowed in computing the taxable trading profit, but may be allowed for capital gains tax

Question 2

What are the first three examples of capital expenditure which is disallowable when calculating taxable trading profit?

Answer 2

• depreciation
• loss on sale of fixed assets (equally profit on the sale of fixed assets is deducted from net profit)
• cost of capital assets included within repairs and maintenance

Question 3

What are the second three examples of capital expenditure which is disallowable when calculating taxable trading profit?

Answer 3

• improvements/enhancements
• expenditure required to first bring an asset into a useable state
• capital related expenditure included within legal and professional fees (with exceptions)

Question 4

Are repairs (returning an asset to its original condition) and maintenance (e.g redecoration) allowable or disallowable?

Answer 4

Allowable costs

Question 5

What is the exception with repairs?

Answer 5

Repairs using current industry standard materials or technology is allowable even though there is an element of improvement e.g using steel girders to support a floor in place of old wooden beams, as long as the new floor cannot support more weight than the old