Capital vs revenue expenditure

Why the distinction matters

Every pound your business spends is either:

• Capital expenditure (capex) — treated as a fixed asset, depreciated over multiple years.
• Revenue expenditure (opex) — treated as an immediate expense in the current period.

Getting this wrong has both accounting and tax implications:

• Capitalising revenue expenditure overstates your assets and understates your expenses.
• Expensing capital items understates your assets and overstates expenses.

Revenue expenditure — expense it immediately

Revenue expenditure maintains the business’s existing capacity. Examples:

• Routine repairs and maintenance (fixing a leaking roof, servicing a machine)
• Consumables (printer ink, cleaning supplies)
• Software subscriptions (Zoom, Slack, Office 365)
• Wages and salaries
• Insurance premiums
• Motor expenses for day-to-day use

These go to the P&L as expenses in the period incurred.

Capital expenditure — add to fixed asset register

Capital expenditure creates a new long-term asset or substantially enhances an existing one. Examples:

• New machinery or equipment
• Company vehicles
• Computers and servers (if above the capitalisation threshold)
• Building improvements (as opposed to repairs)
• Intangible assets (patents, trademarks, developed software)
• Website development costs (not ongoing maintenance)

These go on the balance sheet as fixed assets and are depreciated over their useful life.

The capitalisation threshold

Many businesses set a capitalisation threshold — a minimum value below which purchases are expensed rather than capitalised, even if they technically meet the criteria for an asset. Common thresholds:

Business size	Typical threshold
Micro-entity	£500
Small company	£1,000–£2,000
Medium company	£2,000–£5,000

Set your threshold under Fixed assets → Settings → Capitalisation threshold. AccBooks will prompt you to classify purchases above the threshold as assets.

Borderline cases

Repairs vs improvements: If you replace a roof tile (same specification), it’s a repair (revenue). If you replace the entire roof with a better-quality material that extends the building’s life, it’s an improvement (capital).

Software: Perpetual licence = capital. Annual subscription = revenue. Cloud SaaS subscriptions are almost always revenue.

Leases: IFRS 16 and FRS 102 Section 20 require many operating leases to be capitalised as right-of-use assets. AccBooks handles lease accounting under Fixed assets → Leases.

Research vs development: Research costs are always expensed. Development costs may be capitalised if they meet strict criteria under FRS 102 (commercially viable project with intention and ability to complete).

Setting up in AccBooks

When adding a purchase in the reconciliation queue or journal:

1. If the amount is above your capitalisation threshold, AccBooks asks: “Add to fixed asset register?”
2. If yes, click Add as asset and complete the asset details.
3. If no, classify it to the relevant expense nominal code.

This prompt can be configured under Fixed assets → Settings → Capitalisation prompts.

Tax implications

For capital expenditure, you claim capital allowances rather than depreciation as a tax deduction. See Capital allowances for how AccBooks handles this.

Revenue expenditure is immediately deductible against profits — no adjustment needed for the tax computation.