Capital Expenditure (CapEx)
Spending on assets that will provide long-term benefit to a business, such as machinery, vehicles, equipment, or property.
Capital expenditure (CapEx) refers to funds spent on acquiring, improving, or maintaining long-term business assets. This contrasts with operational expenditure (OpEx), which covers day-to-day running costs. CapEx items are typically capitalised on the balance sheet and depreciated over their useful life rather than expensed in full in the period of purchase.
CapEx is commonly financed through asset finance (hire purchase or finance lease), secured business loans, or internal cash reserves. Financing CapEx externally preserves working capital and can offer tax advantages - hire purchase gives access to capital allowances, while finance lease payments are typically fully tax-deductible.
The boundary between CapEx and OpEx is important for tax purposes and balance sheet presentation. HMRC has specific rules about what constitutes capital expenditure; larger or complex items may benefit from an accountant's assessment. For finance purposes, lenders view CapEx financing positively as it indicates investment in productive assets.
Example
A haulage business buying a fleet of 10 HGVs for £2 million is making a CapEx investment. Financing them on hire purchase preserves the business's working capital while enabling it to access capital allowances on the vehicles.
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