BIM35801 - Capital/revenue divide: computer software: purchased on or after 10 March 1992: developed in-house after 31 December 1996

Availability of capital allowances

Following the enactment of CAA90/S67A (now CAA01/S71), capital allowances became available for capital expenditure on ‘a right to use or otherwise deal with' computer software for the purposes of the trade. For guidance on computer software expenditure before 10 March 1992 see BIM35805 and for expenditure on or after that date see BIM35810 - BIM35815.

The main changes of emphasis on or after 10 March 1992 are that:

1. for expenditure on computer software licences on or after 10 March 1992 on which capital allowances will be available you should give more critical consideration to whether lump sums paid out for the licences are in law capital expenditure,
2. where a single payment is made to purchase computer hardware plus a licence to use the accompanying software we now take the view that the expenditure should be apportioned except where that exercise will not have significant tax consequences.

In some cases the treatment of expenditure on software will have been agreed under the practice set out in BIM35805. For agreements in relation to expenditure before 10 March 1992 you may continue to allow deductions in the accounts that arise in consequence. But for expenditure incurred on or after 10 March 1992, you should refer to the guidance in BIM35810 onwards.

In-house software development costs

For in-house computer software expenditure, see BIM35820 to BIM35865. The guidance therein should normally be applied to expenditure incurred after 31 December 1996. It may also be convenient to agree the treatment of earlier expenditure by reference to the guidance. But where its application would lead to treatment of software development expenditure that is inconsistent with a previously agreed approach, you need not insist on applying it to expenditure incurred in 1996 or earlier. Nor need the guidance be applied to post-1996 expenditure in relation to a project the treatment of which was agreed in 1996 or earlier.

For a reference to legislation which from 1 April 2002 may require the accounting entries in respect of in-house software development costs to be followed in computations of income for CT, even if they are of a capital nature see, however, BIM35501.