Income tax business deductions capital expenditure - 13 Flashcards
l13
What does s. 33 ITTOIA 2005 prohibit?
Deduction of capital expenditure in calculating business profits.
Why is capital expenditure not deductible?
It’s just a change in asset form, not a business cost (e.g. buying a factory).
What did Vallambrosa Rubber Co suggest about payments?
Single = capital; series = revenue (oversimplified now).
What did British Insulated v Atherton establish?
Purpose matters most – spending for enduring benefit is capital.
What are the three types of capital expenditure per Tucker v Granada?
Acquiring, getting rid of, or improving a fixed asset.
Are incidental costs (like removal) deductible?
No – Granite Supply Association Ltd v Kitton says they are capital.
What’s the threshold for a physical asset to be “enduring”?
1 year (per Hinton v Maden & Ireland and HMRC BIM35415).
What’s the threshold for a non-physical asset to be “enduring”?
2 years (Comr of Taxes v Nchanga Copper Mines; HMRC BIM35515).
Are ordinary commercial contracts capital assets?
No – even long-term ones (e.g., petrol exclusivity) are revenue (Bolam, BP Australia).
What distinguishes enduring assets from ordinary contracts?
Enduring assets are business framework items (leases, loans, pensions).
What if you cancel an ordinary contract to avoid high revenue costs?
Still revenue expenditure – Vodafone Cellular Ltd v Shaw.
What if you cancel a capital contract (e.g. buying a ship)?
That’s capital expenditure – Countess Warwick Steamship Co v Ogg.
What matters more: purpose or result?
Purpose – ECC Quarries (failed planning) = capital due to intention.
What if capital result is incidental to business-saving motive?
Not capital – Lawson v Johnson Matthey (injected £50m to avoid collapse).
What if fixed-asset acquisition is the immediate purpose?
Then it’s capital – Stone & Temple v Waters (scanners to save airline).
How can structure minimise capital spending?
Spread costs as rent (revenue) instead of upfront lease premium (capital) – Bolam.
Why did capital allowances develop?
Courts denied deduction for depreciation – unfair, so statute stepped in (Coltness).
What is the main legislation for capital allowances?
Capital Allowances Act 2001 (CAA 2001).
What is the Annual Investment Allowance (AIA)?
s. 51A CAA 2001 – 100% deduction for first £1m of plant/machinery (excl. cars).
How does AIA override s. 33 ITTOIA?
It allows capital costs to be deducted immediately.
What counts as “plant”?
Any equipment used in business – even law books (Munby v Furlong).
Does software count as plant?
Yes – s. 71 CAA 2001.
Are buildings or structures “plant”?
No – ss. 21–23 CAA 2001 exclude them.
What is the Structures and Buildings Allowance (SBA)?
3% per year for 33 years on new non-residential structures from 29 Oct 2018.
