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Capital Expenditure

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THE DEFINITION OF EXPENDITURE FOR CAPITAL PURPOSES

Previous Definition in Financial Procedure Rules
The previous definition of capital expenditure was set out in Part IV of the Local
Government and Housing Act 1989. All capital expenditure and financing must be in accordance with the provisions of the LGHA 1989 and the Local Authorities (Capital
Finance) Regulations 1997. No leasing or credit arrangement as defined by the
LA(CF)R 1997 shall be entered into without the approval of the Director of Finance.

Any service using an asset will be charged with a cost of capital employed which represents interest foregone in owning the asset and depreciation, representing the proportion of the asset’s useful life consumed in the year in question.

Current Position
The LGHA has now effectively been replaced by the Local Government Act 2003 which defines capital expenditure as ‘expenditure that falls to be capitalised under proper practices’. It then goes on to define proper practices as meaning the CIPFA
Recommended Practice (SORP) and any specific legislation. Specific legislation relating to capital expenditure tends to be defined in various Capital Finance
Regulations.

The SORP definition of capital expenditure is therefore supported by statute.
However, it does not have a single definition of capital expenditure, but includes references to capitalising expenditure in various parts of the SORP.
In the Fixed Assets section of the SORP expenditure that should be capitalised includes: • Purchase of intangible assets (software and licences)
• Internally developed intangible assets that have a marketable value
• Acquisition, creation or enhancement of tangible fixed assets such as - * the acquisition, reclamation or enhancement of land * the acquisition, construction, preparation, enhancement or replacement of roads, buildings and other...

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