CAPITAL ALLOWANCES
Capital allowances write off the cost of capital assets against taxable profits. They are used instead of the depreciation in the accounts, which is not allowable as a tax deduction.
Plant and machinery
An annual investment allowance (AIA) of £100,000 is available for limited companies from 1st April 2010 and to unincorporated businesses from 6th April 2010. For accounting periods shorter or longer than 1 year the £100,000 limit is pro-rata. There is a single £100,000 AIA limit for groups of companies and there is "anti-fragmentation" rules for "related" companies and businesses under common control. The AIA limit can be allocated between companies as they wish.
A First year allowance of 20% is available in the year of purchase for expenditure in excess of £50,000 and a subsequent writing down allowance (WDA) of 20% is available. Historic plant and machinery pools attract a WDA of up to £1,000 where the pool is £1,000 or less. Companies that make losses attributable to 100% first year allowances on designated energy saving or environmentally beneficial plant and machinery can surrender the loss in exchange for the first year tax credit equal to 19% of the loss surrendered subject to a maximum of the greater of £250,000 or the company's total PAYE and NIC liability for the period concerned.
Motor cars
Allowances will be given from April 2009 dates according to the CO2 rating of the vehicle. Cars with emissions over 160kg/m will be limited to a 10% writing down allowance. Expenditure on cars with CO2 emissions of 160g/km or below will attract 20% WDA. It will still be necessary to adjust claims where there is an element of private use.
The rules which disallow a proportion of car lease rental payments will be reformed in line with the new capital allowances rules. The new disallowance will be 15% of the relevant payments, applied to cars dealt with the 10% special rate pool. In addition to this, the 100% first year allowance (FYA) for the cleanest cars will be extended from March 31, 2008, to March 31, 2013, and the qualifying CO2 emissions threshold will be reduced to 110g/km.
Other allowances
Research and development expenditure attracts a tax allowance of 130% in the hands of large companies, whilst SME's can claim an allowance equal to 175% of the expenditure. Industrial buildings and Agricultural buildings allowances are available at the rate of 3% on a straight line basis until 2010/11, after which date they are being phased out. Relief is available for companies for the amortisation of intangible assets such as purchased goodwill at the rate they are amortised in the accounts or 4%. Expenditure on commercial premises in enterprise zones attracts tax relief of 100% , as does expenditure on the renovation of disadvantaged areas and expenditure on flat conversions.
Summary
The current rates of capital allowances are summarised in the table below:
| Plant And Machinery | Allowance |
| General pool: | |
| - expenditure up to £100,000 - First Year | 100% |
| - subsequent writing down allowance | 20% |
| - expenditure over £100,000 - First Year | 20% |
| Special rate pool (long life assets, integrated features): | |
- expenditure up to £100,000 - First Year | 100% |
| - expenditure over £100,000 - First Year | 10% |
| - subsequent writing down allowance | 10% |
| Energy saving plant and machinery | 100% |
| Motor cars | |
| New cars until 31st March 2013 with CO2 emission not exceeding 110gm/km | 100% |
| Other cars writing down allowance | 20% - max £3,000 p.a |
Research and development | |
| Large Companies | 130% |
| SME's | 175% |
| Industrial buildings | 3% straight line |
Agricultural buildings | 3% straight line |
| Intangible assets for companies | Amortisation per accounts or 4% |
| Enterprise Zone for commercial purposes | 100% |
| Disadvantaged Areas Business Premises Renovation allowance | 100% |
| Flat conversions | 100% |
Further advice
For further advice about the capital allowances available to your business please contact us by telephone on 01299 879140.
