Business taxation Essay Example | Topics and Well Written Essays - 2000 words

Business taxation - Essay Example Understanding Revenue and Capital Expenditures Revenue expenditures such as rent of premises for conducting business, employee wages, raw materials and many such items are ongoing expenditures that are necessary to generate business profits. Revenue expenditure is also known as circulating capital that means capital changes hands to produce profit and loss. On the other hand, capital expenditures such as purchasing land or building, plant and machinery or goodwill form a long-term expenditure that accrue benefits until its useful life. The Statute ICTA88/S74 (1) (a) provides that only those expenditures are allowed for deductions that are "incurred wholly and exclusively for the purpose of trade" (BIM37035). However, capital expenditures are not allowed for deductions fully, and its treatment is governed by different statutes, as incorporated by the governing office from time to time. Capital Expenditures – Differential Treatment in GAAP and Income Tax It is important to note that accountancy and income tax laws are not fully in alignment as far as treatment of capital expenditure is concerned. ... All revenue expenditures are allowed for deduction to profit and loss statement. All capital expenditures are not allowed for deductions unless allowed by statute. For example, ITTOIA/S58 and S59 are the statues that allow deductions for the incidental costs incurred while raising a loan for business purposes (BIM45800, 2012). The statutes deal with the costs incurred while raising loans or issuing loan stock. These statutes do not provide relief for the costs incurred while raising finance through other methods such as bills of exchange, leasing assets, hire purchase, buying assets on credit or any form of equity financing. The incidental costs to obtain finance have been defined in ITTOIA/S58 (2). The allowable costs include commissions, fees, advertising, printing and related matters. It is required that the costs must be incurred, wholly and exclusively, for the purpose of acquiring or repaying the finance including its security. Some of the costs that are included under this sta tute can be described as per the following (BIM45815). a. Introduction fees, underwriting commissions, brokerage. b. Professional and legal expenses for negotiating the loan and getting the document ready. c. Valuer's fees, land registry fees incurred towards the security of the loan. d. Commitment fees. e. The costs of issuing a prospectus, postage, and the costs of advertising etc (BIM45815). Statute ITTOIA/S59 (1) provides that expenditure incurred while obtaining loan is not allowed for any deduction if it has provisions of conversion into shares or if any other securities or conversion takes place before three years from the date of loan obtaining (BIM45810). There are several deductions