Budget hopping

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by being permitted to claim capital allowances for the item.

“Tax-deductible expenses mean the expense incurred can be legally deducted from an organisation’s profits, and hence reduces the amount of tax required to be paid.”

Depreciation, Kontzle tells us, is charged as an expense to an organisation. “It doesn’t have any impact in reducing profits for tax purposes. However, as the tax office recognises that depreciation is a vague concept to collect tax, it utilises the concept of ‘capital allowances’.

“By enabling organisations to invest in new plant, fixture and fittings and machinery, etc, they [tax office?] regularly modify the capital allowances available as deductions from an organisation’s profits, which can benefit the amount of tax paid.”

Capex turned Opex

There are occasions when Capex on the purchase of assets may have been charged to the profit and loss account; for example, fixtures and fittings, repairs and renewals.

“A closer review of the accounts for the repairs and renewals may reveal items of a capital nature, which are not allowable as revenue expenditure; however, a capital allowance claim might be possible,” Kontzle says.

HMRC’s BIM35005 document covers the inconclusiveness of the tax position, as there is no single test to determine whether an item was a Capex or Opex expense. The context and purpose of the acquisition matters more.

The blurred lines between Capex and Opex classification can affect how managers and stakeholders make wider FM decisions, particularly when it comes to managing their company’s activities in-house or using an outsourced specialist FM provider.

“By outsourcing, this process can release cash for other organisational development projects, in exchange for a monthly or quarterly service charge payment for the facilities provided, with costs of service being