BIM35110 - Capital/revenue divide: basis of computation: statutory disallowance of specific capital expenditure

ICTA88/S74 (1)(f) and (g) are statutory rules disallowing specific categories of capital expenditure. They prohibit a deduction in computing the amount of the profits to be charged under Case I or II of Schedule D for expenditure in particular categories:

ICTA88/S74 (1)(f)

‘any capital withdrawn from, or any sum employed or intended to be employed as capital in, the trade, profession or vocation, but so that this paragraph shall not be treated as disallowing the deduction of any interest’

ICTA88/S74 (1)(g)

‘any capital employed in improvements of premises occupied for the purposes of the trade, profession or vocation’

The specific prohibition of these categories of capital expenditure does not mean that all other categories are allowable. Unless specifically allowed by statute, capital expenditure is not an allowable deduction for the purposes of computing profits chargeable under Case I and II of Schedule D.

You should note that the courts have held that the final words of ICTA88/S74 (1)(f) ensure that all interest payments are revenue. Nourse L J, in Beauchamp v F W Woolworth plc [1989] 61TC542 ( BIM35115) affirmed this at page 566C of 61TC - The final words (of what is now ICTA88/S74 (1)(f)), whose effect is expressly to allow the deduction of interest on sums which are caught by paragraph (f), were added by the Finance Act 1969.

So you should not seek to argue by reference to first principles that interest payments are capital expenditure.