Came across this in Revenue
Tax Briefing 46
[The discussion in question is in relation to hardware and software costs incurred during the euro changeover period but no reason to assume it no longer applies, I suppose. Note that allowance has since changed from 20% to 12.5% per annum]
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Changeover Costs
The question of how business costs incurred to deal with the euro will be treated for tax purposes is again topical as we approach the changeover date. It is therefore timely to repeat and update an earlier article on this topic which appeared in Issue 31 of Tax Briefing (April 1998). Most queries on this topic relate to the costs incurred on computer software and hardware, on adapting point-of-sale equipment such as cash registers and vending machines, and on training costs.
Revenue vs. Capital Expenditure
The starting point in dealing with this issue is to understand the basic difference between costs of a revenue nature (which can generally be written off in full for tax purposes in the year in which they are incurred), and costs of a capital nature for equipment (which, in most cases, can be written off for tax purposes over 5 years for expenditure incurred on or after 1/1/01). In this regard - although there are some exceptions such as finance leases - the capital/revenue classification for tax purposes will generally follow accountancy principles. For accountancy purposes, costs are of a capital nature if they give rise to an asset. Where costs are incurred in adapting existing assets, it is necessary to assess whether the expenditure enhances the economic benefit of the asset (by extending its service potential) or simply maintains its standard of performance, as originally assessed. In the former case, the costs are of a capital nature and will qualify for capital allowances; in the latter case, the costs can be written off for tax purposes as incurred.
Software Costs
Software to deal with the euro changeover can either be bought in or developed/adapted in-house. In either case, the principles outlined above will determine whether the costs will be of a capital or a revenue nature. As a general rule, these costs are likely to be of a revenue nature, and therefore can be written off for tax purposes as they are incurred.
They represent no more than a modification of existing assets to deal
specifically with the euro. They will only be capital where the new software acquired or the adaptation of existing software clearly results in
an enhancement beyond the original standard of performance and is not a mere maintenance of its service potential. Any software expenditure of a capital nature can be written off for tax purposes over 5 years (for expenditure incurred on or after 1/1/01) in the same way as plant and machinery.
Hardware Costs
It may be that existing hardware (computers, cash registers, vending machines etc.) may also need to be modified to cope with the euro. Again, the capital/revenue distinction, as outlined above, must be made to determine the tax consequences. As with software, the cost of modifications to maintain the equipment’s service potential can be written off for tax purposes as incurred. The cost of new hardware, or the cost of enhancing existing hardware beyond the asset’s originally assessed standard of performance, can be written off for tax purposes over 5 years (i.e. 20% per annum for expenditure incurred on or after 1/1/01).
Training etc.
The costs of training, and other costs such as informing customers, changing stationery, etc., will generally be of a revenue nature and can be written off for tax purposes as incurred.
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So it seems clear that computer hardware costs should be capitalised. Computer maintenance costs (including software upgrades) could be interpreted as a revenue expenditure.
Unless Revenue policy or Tax Law has changed since this was published, of course.