Starting in Business - Capital Allowances

Some types of capital expenditure can benefit from tax relief, through the system of capital allowances. The most important allowances are for plant and machinery, which includes fixtures and fittings and motor vehicles. Capital allowances are deducted from income in calculating taxable profits. Where capital expenditure is incurred before the business starts, the allowance is given as if the expenditure had been incurred on the first day of trading. The rate of allowance is determined by the date on which the expenditure was actually incurred.

Capital allowances were radically overhauled in Budget 2008 and from April 2008 stand as follows:

• There is an annual investment allowance (AIA) for the first £50,000 of expenditure on plant and machinery in the general pool.
• The rate of writing-down allowances for plant and machinery in the general pool is reduced from 25% to 20%.
• The rate of writing-down allowances on long-life asset expenditure is increased from 6% to 10%. (Any such assets unrelieved on 1 April 2008 must be allocated to a new 10% “special rate” pool).
• A plant and machinery writing-down allowance of up to £1,000 is available where the unrelieved expenditure in the general pool or the new special rate pool is £1,000 or less.
• Writing-down allowances on industrial and agricultural buildings are being gradually phased out by 2011/12.
• The rate of writing-down allowances on certain fixtures integral to a building is set at 10%.
• A payable first year tax credit for losses resulting from capital expenditure on certain designated “green technologies” is introduced.
• The 100% first year allowances for expenditure on cars with low carbon dioxide emissions is extended until 31 March 2013.
• The 100% first year allowance for expenditure on natural gas, biogas and hydrogen refuelling equipment is extended until 31 March 2013.
• The rate of R&D tax credits is 130% for large companies and 175% for SMEs.
• Designated plant and machinery which is energy efficient, reduces water use or improves water quality qualify for 100% write-down under the Enhanced Capital Allowances scheme.

Further changes were introduced or confirmed in Budget 2009 including:

A new temporary 40 per cent first-year allowance (FYA) for expenditure on general plant and machinery. That is expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.

The expenditure must be incurred in the year to 31 March 2010 (for companies) and 5 April 2010 (partnerships and individuals).

Must not relate to specific proscribed assets, including for example, long life assets, cars and assets for leasing.

The replacement of the existing capital allowance treatment for business cars and the restriction on deductions for expenditure on car hire by an emissions-based approach.

For cars purchased from April 2009:

New cars with CO2 emissions at 110g/km or lower continue to qualify for 100% First Year Allowance.

Cars with CO2 emissions at 111g/km to 160g/km go into the main plant & machinery pool and attract a WDA of 20% unless there is private use.

Cars with CO2 emissions over 160g/km go into a special rate pool and attract a WDA of 10% unless there is private use.

For cars hired from April 2009, there will be a fixed 15% disallowance of relevant payments applied:

in respect of cars with emissions above 160g/km, to only one lessee in a chain of leases (in most cases to the last business user), and to all cars including 'qualifying hire cars'.

• Here at Geoffrey Cole & Co., Chartered Accountants, Reading, Berks we have an extensive list of online resources available for FREE DOWNLOAD in our unique Info Vault.

• It is extremely important for all businesses to note that new and amended legislation may become applicable at any time.

Geoffrey Cole & Co Chartered Accountants & Registered Auditors offer a service that both encompasses and extends beyond the provision of traditional tax, auditing and assurance services. We believe in the value of an integrated approach to your financial needs and view a substantial part of our role as being that of business adviser. In this capacity, we work alongside you, helping you identify your immediate and long-term business objectives and plan for them accordingly. Communication is key and we maintain regular contact with clients in relation to their own affairs. Our IT capabilities are extensive: wherever possible your documentation will be prepared and processed electronically. Furthermore, as SAGE software suppliers and trainers our expertise with their business packages is second to none.

Our years of experience are reflected in the range of services we provide and our extensive client list.

Managing Director Geoff Cole says:
"Our aim, as Chartered Accountants, is to help you to achieve your personal goals and aspirations. Yes, we can deal with the compliance work such as audits, tax returns and the preparation of accounts but these are not the area of our principle focus"

“It’s about you.”