Capital expenditure, or CapEx, is money a construction business spends to acquire or improve an asset it expects to use for more than one accounting period, such as a crane, a fleet vehicle or a new depot. It sits apart from operating expenditure (OpEx), which covers day-to-day running costs like fuel, wages and rent. Because a capital asset keeps delivering value beyond the current year, its cost is spread over time through depreciation rather than expensed in full on the day the cash goes out.
Worked example
A contractor buys a used excavator for £65,000 with an expected useful life of 10 years. Rather than showing the full £65,000 as a cost in the month of purchase, the accounts depreciate it at roughly £6,500 a year, matching the expense to the years the machine is actually earning the business money. Compare that with the £450 a month spent on fuel and routine servicing for the same excavator, which is OpEx and hits the accounts as soon as it is paid. If the business instead hires a similar excavator for a single six-week job rather than buying it, the hire cost is OpEx from the start, since it never owns a long-term asset in the first place.
CapEx in the budget
CapEx does not usually appear on an individual project's cost report, because it is a company-level asset purchase rather than a cost tied to one job. Where it shows up is in the business's capital budget and Depreciation Schedule, and sometimes as an internal plant-hire charge back to the projects that use the asset. Treating a CapEx purchase as if it were a project's direct cost will distort that project's margin, since the full purchase price has nothing to do with any single job. Finance teams typically set a threshold, for example anything over £1,000 with a useful life beyond a year, below which a purchase is expensed immediately rather than capitalised, so small tools do not end up tracked as long-term assets.
Related terms
Depreciation Schedule, Overhead Costs, Direct Costs.
FAQs
What is the difference between CapEx and OpEx?
CapEx buys or improves a long-term asset and is depreciated over its useful life. OpEx covers routine running costs and is expensed in the period it is incurred.
Is buying a new work van CapEx or OpEx?
Buying the van outright is CapEx, since it is a long-term asset. Leasing it, fuel and servicing are OpEx, since they are ongoing running costs rather than one-off purchases.