Capital expenditure buys something that will be used over years: a vehicle, equipment, premises, a major system.
Operating expenditure is the ongoing cost of running: wages, fuel, rent, insurance, materials.
Why the split matters
Operating costs hit profit in the period they occur.
Capital costs do not. They become an asset and reach profit gradually through depreciation across the years the thing is used.
So a business can spend heavily on capital and show strong profit in the same month, because most of that spending has not reached the profit statement yet. The cash left; the cost has not landed.
This is one of the larger reasons profit and the bank balance diverge — see cash flow statement.
Where the line falls
Roughly: does it last beyond a year and have lasting value.
A repair keeping a van running is operating. A new engine substantially extending its life is capital. The boundary is genuinely a judgement, and there are thresholds below which small purchases are simply expensed regardless.
Why the classification is worth getting right
Capitalising costs that should be expensed overstates profit and overstates tax.
Expensing costs that should be capitalised understates profit in one period and overstates it later, which makes trends unreadable.
Tax treatment differs and changes
Rules allow some capital purchases to be deducted immediately rather than depreciated, and the limits move between tax years — see equipment financing.
Where a purchase is large enough for the treatment to matter, it is worth confirming with an accountant before buying rather than at filing.