A business’s operating costs are its business expenses. Some business expenses are tax deductible, saving much money and increasing profitability. Business expenses can be categorised into Revenue and Capital Expenses.

Revenue (trade) expenses are related “wholly and exclusively” to business operations to qualify for tax relief. The costs must be incurred while doing business or seeking to attract more business. Revenue expenses are for short-time benefits and have limited-time benefits. Examples of revenue expenses include printer ink and stationery etc. Revenue expenses dominate daily expenses. Even an expense is a revenue expense but can be non-tax-deductible. Disallowable costs or expenses to be added back are entertainment, depreciation and goods bought for personal use.

Capital expenses are substantial purchases of assets you expect to utilise in the business for a long time. For example, a computer or office shelving should last more than a year, but there is no specific law to categorise assets. You need to make the best judgement on understanding what can be classed as an asset. Capital expenditures qualify for capital allowances, and if you use the cash basis of accounting, certain capital expenditures may be classified as revenue expenditure and accounted for in the Profit and Loss account instead of the Balance Sheet.