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Classifying expenditure appropriately could help save your business money by claiming the appropriate tax relief.

This could also help to save you from being investigated by the revenue in the future and paying penalties.

These mistakes are easily done, so this blog post will help to highlight seven things that could help you.

classifying expenditure,capital and revenue expenditure

When significant improvement is made:

One of the first things to take note of is that the cost of a repair is normally allowable revenue expenditure.  When a significant improvement has been made on the asset as a whole or replaced it’s not deductible.

  1. Incurring Legal and Professional fees:

When classifying expenditure the following should be disallowed:

Legal and professional fees that relate to the acquisition of property/assets or changing the way of ownership of the business.

Fees are incurred in connection with the acquisition, alteration, or enhancement of how the ownership of a business is structured.

  1. Record keeping of expenditures:

Record keeping is legally required for expenditures in business.

You are expected to keep them either physically or digitally for 6 years.

However, keeping details of facts that relate to the transactions could help to prove the nature of the transactions.

This will be very helpful in case of investigation from HMRC.

classifying expenditure,capital and revenue expenditure

  1. Incurring costs on Computer hardware, software, and other IT items:

When IT costs are acquired, business owners should always ensure classifying expenditure according to the function in the business.

This is just to be sure that it’s capital or revenue expenditure.

The life span of the IT expenditure could also help to determine the nature of the expenditure.

Also, if the business obtains something of enduring benefit from the acquisition of the item bought.



  1. Finance costs paid by businesses:

When finance cost is incurred, the business owner should identify the one that relates to capital nature and revenue nature and deduct appropriately.

  1. Training cost for a proprietor or partners in the business:

When a business pays for training for the proprietor or a partner in the business, they need to make sure that the expenditure has been treated correctly.

The cost would be allowable as revenue expenditure if it relates to the cost of training and development for the proprietors or partners.

And also that the cost incurred is wholly and exclusively for the purpose of the trade or profession at the time the training was undertaken.

7. Loan arrangements or cost that is spread over their lifetime:

Care must be taken when business owners attempt classifying expenditure for their business.

Expenditure relates to items that have been spread over the lifetime of the expense in accordance with generally accepted accounting practice.

Even though the item has been spread over its lifetime under GAAP does not necessarily mean it is the right taxation treatment.

Therefore, the business owner must review long-term loans or securities to identify any arrangement or rearrangement fees.

Conclusion on factors to consider when classifying expenditure.

I hope reading this blog will help you now or in classifying expenditure efficiently.

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However, if you would like us to support your business with accountancy and tax advice kindly contact us.