Contributions towards capital expenditure

A wide variety of grants or subsidies are available to businesses and can be received in addition to their ordinary business income. It is important to identify these contributions and to establish whether they are capital or revenue in nature.

Funding which facilitates capital expenditure, such as new premises or machinery, is normally treated as a capital receipt. The general rule is that a capital grant is deducted from the qualifying expenditure and that capital allowances are available on the net amount.

For this general rule it does not matter if the contribution is:

• made by a public body or another person (a public body is the Crown or any government or public or local authority wherever it is based)
• capital or revenue – unless the allowances are dredging allowances (a contribution towards a person’s expenditure on dredging is deducted if it is made by a public body or if it is a capital contribution made by another person)
• not received until after the expenditure is incurred (if the expenditure was to be met in whole or part by the contribution then it is still deducted)

There are three exceptions to the general rule:

• Northern Ireland regional development grants (up to 31 March 2003),
• insurance and compensation, and
• contributions made by persons (other than public bodies) who cannot get tax relief.