Opex vs capex

Published Wednesday 30 September 2026

Table of contents

• What is opex?
• What is capex?
• Key differences between opex and capex
• How to categorise expenses as opex or capex
• How to calculate capex and opex
• Tax treatment of opex and capex in Ireland
• Budgeting for opex and capex
• Track opex and capex with Xero
• FAQs on opex vs capex
• Related terms
• Learn more about opex vs capex

Key takeaways

• Operating expenditure (opex) is the day-to-day cost of running your business, while capital expenditure (capex) buys assets you’ll use for more than one year
• You deduct opex in the year you spend it, while capex goes on your balance sheet and you claim capital allowances on it over time
• Irish tax law sets no euro threshold for capex, so the nature of each purchase decides how you treat it
• For accounting periods beginning on or after 1 January 2026, Financial Reporting Standard 102 (FRS 102) puts most leases on the balance sheet

What is opex?

Operating expenditure (opex) is the money you spend to keep your business running day to day. It covers recurring costs such as rent, wages, insurance and software subscriptions.

Picture a café: the milk order, the barista’s wages, the electricity bill and the monthly rent are all opex. They come round regularly, and you use them up within the year.

Opex leaves out the direct cost of the stock or materials you sell, which you track separately as cost of goods sold (COGS).

Most of your regular outgoings are opex. Common examples include these costs:

• Wages and salaries for your team
• Rent for your premises
• Energy and broadband bills
• Insurance premiums
• Marketing and advertising
• Accountancy and legal fees

Opex shows up as expenses on your profit and loss statement. Because it’s subtracted from revenue, every euro of opex reduces your reported profit.

What is capex?

Capital expenditure (capex) is money you spend buying or improving assets that will serve your business for more than one year. These purchases tend to be larger and less frequent than opex.

Back in the café, a new espresso machine is capex: you pay once and use it for years. Its cost is spread across its useful life through annual depreciation charges rather than hitting profit in one go.

Capex comes in two kinds. Maintenance capex keeps what you have running, such as replacing a broken oven. Growth capex expands what you can do, such as fitting out a second premises.

These are typical capex purchases for a small business:

• Vans and cars
• Machinery and tools
• Computers and other IT hardware
• Shop and office fit-outs
• Software licences you buy outright

Capex sits on your balance sheet as a fixed asset. Its value falls each year as depreciation is charged.

Key differences between opex and capex

Opex and capex both take money out of your business, but they land in different places in your accounts and your tax return. Here are the main ways they differ:

• Opex covers costs you use up within the year, while capex buys assets that last longer
• Opex reduces profit in full straight away, while capex reduces it gradually through depreciation
• Opex is usually regular and predictable, while capex tends to arrive in lumps
• You deduct opex for tax as you incur it, while you claim capital allowances on capex over several years

Timing and flexibility

Opex keeps your doors open, so rent and wages have to be paid on time. The upside is speed: if you overspend on marketing one month, you can adjust the next.

Capex gives you more say over timing, since you can often wait on a new van until cash flow allows. The trade-off is commitment, because an asset you didn’t need ties up cash for years. A broken machine you rely on may still need replacing straight away.

Where they appear in your financial statements

Each type shows up in a different part of your year-end accounts. Knowing where to look helps you read your reports with confidence:

• Opex appears as an expense on the profit and loss statement
• Cash spent on opex reduces operating cash flow in the cash flow statement
• Capex appears as a fixed asset on the balance sheet
• Cash spent on capex shows under investing activities in the cash flow statement
• Depreciation on capex assets appears as an expense on the profit and loss statement

How to categorise expenses as opex or capex

Irish tax law sets no fixed euro threshold for capex, so the nature of the spending decides. Section 81 of the Taxes Consolidation Act 1997 (TCA) blocks deductions for capital sums and for improvements to your business premises.

Ask these questions about each purchase. If you answer yes to most of them, it’s probably capex:

• Does it buy or improve an asset rather than cover a running cost?
• Will you use it for more than one year?
• Will it keep benefiting your business after this financial year?
• Would it appear as a fixed asset in your accounts?

For bookkeeping, you can set your own capitalisation policy, such as expensing items below an amount you choose. That’s an internal accounting choice, and Revenue still looks at what the spending is for.

Common grey areas

Repairs and improvements cause the most confusion. Revenue’s notes for guidance on section 81 allow what you actually spend repairing business premises, but not capital used to improve them.

So fixing a leaking roof is opex, and building an extension is capex. A laptop you’ll use for several years is capex even at a modest price, because there’s no euro cut-off.

Software splits by purpose. A licence for use in your own business qualifies for standard plant and machinery allowances. Software bought to exploit commercially falls under a separate intangible assets scheme.

How to calculate capex and opex

You can work out a year’s capex and opex from your balance sheet and profit and loss statement. Follow these five steps:

1. Find the net value of your fixed assets on the opening balance sheet for the year
2. Find the same figure on the closing balance sheet
3. Find the depreciation charged for the year on your profit and loss statement
4. Work out capex by taking closing fixed assets, subtracting opening fixed assets and adding the year’s depreciation
5. Work out opex by adding up the operating expenses on your profit and loss statement, leaving out cost of goods sold

Say your design studio started the year with fixed assets of €40,000 and ended it with €52,000, after charging €8,000 of depreciation. Your capex is €52,000 − €40,000 + €8,000 = €20,000.

On the same profit and loss statement, you spent €36,000 on wages, €12,000 on rent, €4,000 on software subscriptions and €3,000 on insurance. Your opex for the year is €55,000.

Tax treatment of opex and capex in Ireland

How you classify spending decides when you get tax relief on it. Opex reduces your taxable profit in the year you spend it, while capex is relieved gradually through capital allowances.

Deducting opex

You deduct running costs in full in the year you incur them, as long as the money is spent wholly and exclusively for your trade. If you spend €10,000 on rent this year, the full €10,000 comes off your taxable profit as a deductible business expense.

Claiming capital allowances on capex

Capex is relieved through capital allowances rather than an upfront deduction. Revenue’s guidance on capital allowances sets wear and tear on plant and machinery at 12.5% a year over eight years. So an €8,000 machine gives you €1,000 of allowances each year.

Some assets follow their own rules. Keep these in mind before you buy:

• Cars get allowances on a value capped at €24,000, with the full cap, half or nil available depending on the car’s carbon dioxide (CO2) band
• The emissions bands for cars tighten from 1 January 2027, so check a car’s band before you commit
• The car cap applies to cars only, and vans follow the standard plant and machinery rules
• Most industrial buildings get 4% a year over 25 years

Not every building qualifies for the industrial buildings allowance, so check with your accountant before planning around it.

Accelerated capital allowances

Revenue’s accelerated capital allowance (ACA) scheme lets companies claim 100% of the cost of qualifying energy-efficient equipment in its first year of use. The equipment must be on the Sustainable Energy Authority of Ireland (SEAI) list, and the scheme runs until 31 December 2030.

Checking the SEAI list before you buy could bring eight years of allowances into one.

Why depreciation isn’t deductible

Revenue relieves capex through its own fixed rates, so the depreciation you charge in your accounts doesn’t count for tax. As PwC’s summary of Irish corporate deductions sets out, your accountant adds depreciation back to profit and claims capital allowances in its place.

Budgeting for opex and capex

Opex and capex need different budgeting approaches, because one is steady and the other arrives in lumps. Planning for both keeps your cash flow on track.

Forecasting your running costs

Opex is predictable, so your past spending is your best guide. Review the last 12 months of recorded business expenses and add known changes, such as a rent review or a new hire. Then set a monthly budget you can check against actual spending.

Planning capital purchases

Capex depends on your growth plans and the condition of your equipment, so keep a separate list of planned purchases with estimated costs and timing. Adding them to your cash flow forecast shows when you can afford each one, and you can rank them by urgency and expected return.

Leasing vs buying under FRS 102

Leasing used to keep equipment costs in opex. The Financial Reporting Council’s FRS 102 amendments change that for accounting periods beginning on or after 1 January 2026. Most leases now go on your balance sheet as a right-of-use asset and a lease liability.

Short-term leases and leases of low-value items are exempt and can still be expensed. Small companies reporting under Section 1A of FRS 102 are in scope, so the change applies to smaller businesses too.

With leases now on the balance sheet either way, weigh these factors when you choose between leasing and buying:

• How much cash you can spare upfront
• How long you’ll need the asset
• How quickly it’ll need replacing, as IT hardware often does
• How a lease liability or loan will look to your lender
• Which capital allowances you could claim if you buy

Track opex and capex with Xero

Sorting spending into opex and capex as you go makes tax time quicker and gives you a clear view of profit. Xero brings in transactions through automated bank feeds, so you can code each expense as it happens and see the results in real-time reports.

You can also record and depreciate your fixed assets in the same place, ready for your accountant to work out capital allowances. Try Xero and get one month free.

FAQs on opex vs capex

Here are quick answers on some common grey-area costs.

Is a laptop opex or capex?

A laptop is usually capex, since you’ll use it for several years. A €2,000 laptop gives you €250 of capital allowances a year for eight years.

Are salaries opex or capex?

Salaries are opex, and you deduct them in the year you pay them as long as the work is for your trade.

Is depreciation opex or capex?

Depreciation is an operating expense on your profit and loss statement, but it’s a non-cash cost that spreads earlier capex over time. That’s why the capex calculation adds it back, so the result shows only what you spent on assets this year.

Is software opex or capex?

Cloud subscriptions you pay monthly or yearly are opex. A licence you buy outright for your own business is capex, claimed at 12.5% a year over eight years.

Can leasing turn capex into opex?

Only for short-term or low-value leases. Hiring a van for six months can stay as a running cost, while a four-year van lease goes on your balance sheet under FRS 102.

Related terms

• Fixed assets
• Amortisation
• Liabilities
• Accrual accounting
• Net profit

Learn more about opex vs capex

• What are overheads?
• What is accumulated depreciation?
• Business cost-saving ideas
• How to measure profitability
• Net operating profit after tax