Capital costs for construction projects
Capital costs are costs associated with one-off expenditure on the acquisition, construction or enhancement of significant fixed assets including land, buildings and equipment that will be of use or benefit for more than one financial year.
Whilst it is generally relatively straight forward to identify expenditure to acquire or construct fixed assets, distinguishing between enhancements and 'revenue account' expenditure (sometimes called revenue expenditure or operational costs) such as repairs, maintenance, or replacement can be difficult.
Very broadly, capital enhancements should either:
- Significantly lengthen the life of the asset.
- Significantly increase the value of the asset.
- Significantly increase usefulness of the asset.
It is important to distinguish between capital and revenue account costs as there are significant accounting and taxation issues which stem directly from how a particular item of expenditure is treated. On a personal level, it can affect whether a particular transaction is subject to capital gains tax as opposed to income tax. In a commercial environment similar issues arise, as well as the possible entitlement to capital allowances, and how such treatment affects profitability.
The capital cost of developments can include:
- Land or property acquisition.
- Commissions.
- Statutory fees.
- Consultant fees directly associated with the development.
- Materials, plant and equipment.
- Labour.
- Fixtures and fittings.
- Project insurance, inflation, taxation and financing.
- Internal costs directly associated with the development.
Operational costs incurred in day-to-day operations might include:
- Wages.
- Utilities.
- Maintenance and repairs.
- Rent.
- Sales.
- General and administrative expenses.
In a commercial setting, accounting practice permits certain items of expenditure, which may appear to be operational in nature, to be capitalised, and a company's profitability can be enhanced or degraded according to how some items of expenditure are treated.
In construction and property these are complex issues, with additional complexity arising where a project may involve a combination of new build and repair and refurbishment.
On a new development it is common practice to capitalise items, such as consultants fees, which, on the face of it, would appear to be short term in nature. This is permitted under accountancy rules as such fees are an integral part of the development budget and so they may be included in the total capital cost of a scheme. By treating such fees as an 'asset' and including their value on the balance sheet, a company is enhancing its profitability as these fees would otherwise have to be set against the income of the company in question.
Capital allowances are tax deductible amounts which relate to specific categories of expenditure, most typically plant and equipment, and fixtures and fittings. By definition not all capital expenditure qualifies for capital allowances for example, consultants fees or Stamp Duty Land Tax.
[edit] Related articles on Designing Buildings
- Accounting.
- Budget.
- Business administration.
- Business plan.
- Capex.
- Capital.
- Capital allowances.
- Commercial management.
- Construction loan.
- Construction organisations and strategy.
- Cost.
- Cost-benefit analysis in construction.
- Cost reporting.
- Cost vs price.
- Hard costs v soft costs.
- Cost plans.
- Life cycle assessment.
- Life Cycle Costing BG67 2016.
- Net Present Value.
- New Rules of Measurement.
- Opex.
- Outturn cost.
- Price.
- Stamp duty land tax.
- Sunk cost.
- Whole life costs.
Featured articles and news
The UK’s largest air pollution campaign.
Future Homes Standard, now includes solar, but what else?
Will the new standard, due to in the Autumn, go far enough in terms of performance ?
BSRIA Briefing: Cleaner Air, Better tomorrow
A look back at issues relating to inside and outside air quality, discussed during the BSRIA briefing in 2023.
Restoring Abbotsford's hothouse
Bringing the writer Walter Scott's garden to life.
Reflections on the spending review with CIAT.
Retired firefighter cycles world to raise Grenfell funds
Leaving on 14 June 2025 Stephen will raise money for youth and schools through the Grenfell Foundation.
Key points for construction at a glance with industry reactions.
Functionality, visibility and sustainability
The simpler approach to specification.
Architects, architecture, buildings, and inspiration in film
The close ties between makers and the movies, with our long list of suggested viewing.
SELECT three-point plan for action issued to MSPs
Call for Scottish regulation, green skills and recognition of electrotechnical industry as part of a manifesto for Scottish Parliamentary elections.
UCEM becomes the University of the Built Environment
Major milestone in its 106-year history, follows recent merger with London School of Architecture (LSE).
Professional practical experience for Architects in training
The long process to transform the nature of education and professional practical experience in the Architecture profession following recent reports.
A people-first approach to retrofit
Moving away from the destructive paradigm of fabric-first.
International Electrician Day, 10 June 2025
Celebrating the role of electrical engineers from André-Marie Amperè, today and for the future.
New guide for clients launched at Houses of Parliament
'There has never been a more important time for clients to step up and ...ask the right questions'
The impact of recycled slate tiles
Innovation across the decades.
EPC changes for existing buildings
Changes and their context as the new RdSAP methodology comes into use from 15 June.
Comments