Whether an item of expenditure is capital or revenue is crucial in determining whether it is tax deductible, and the distinction has been the subject of numerous cases over the years. The most famous of the principles to emerge from that line of authorities is that capital expenditure arises when it is made:
Not only once and for all, but with a view to bringing in to existence an asset or advantage for the enduring benefit of a trade.
(Atherton v British Insulated and Helsby Cables Ltd 10 TC 155)
Another formulation appeared in Tucker v Granada Motorway Services Limited where the House of Lords expressed the view that expenditure was of a capital nature if it was a payment on a capital asset designed to make it more advantageous. This is not the same as expenditure on defending or maintaining an existing asset which would be allowable as revenue expenditure.
The recent case of Market South West (Holdings) v HMRC TC 432 concerned relief for legal fees incurred on a disputed planning application. It was acknowledged that where a payment can be linked to a capital asset, the payment is more likely to be treated as a capital payment. However, the Tribunal did not consider that to be crucial because the creation of an enduring advantage for the trade was sufficient to establish capital categorisation for the payment.
The taxpayer claimed that there were rights in relation to an earlier planning permission which was an asset and that the costs were merely the maintenance or defence of those rights. The Tribunal thought not. They said that even if it was, the costs related to the enhancement or alteration of that asset and therefore represented capital expenditure.