Capital allowances: are you claiming in full?
Recent Budgets have brought significant changes to capital allowances, which replace accounting depreciation in calculating taxable profits. Here is a summary of what is now available, including the changes proposed in the 2009 Finance Bill:
- Writing down allowances are reduced from 25% to 20% per annum from April 2008.
- Certain integral assets in buildings are now allocated to a special rate pool, which gives relief at the lower rate of 10% per annum. This provides additional relief against expenditure, which previously did not qualify for relief, but also reduced rates of relief against other expenditure.
- Industrial buildings allowances continue to be phased out, and will be abolished in 2011.
- The annual investment allowance, introduced in April 2008, gives 100% relief against trading profits on the first £50,000 of qualifying expenditure in each year. This allowance initially replaced the scrapped first-year allowances for small and medium-sized businesses. Restrictions mean the £50,000 allowance must be shared by companies under common control.
- A temporary first-year allowance of 40% is available for expenditure for 12 months from April 2009. The relief is given on the balance of expenditure after the annual investment allowance has been taken, but can only be used against assets that are allocated to the general pool.
- Capital allowances for cars are subject to new rules from April 2009, which calculate the rate of relief based on CO2 emissions rather than the original cost of the car. Similar changes apply to leased cars.
- 100% first-year allowances are available on environmentally-friendly plant and machinery, with potential tax credit repayments for companies.
You can obtain a more detailed analysis by emailing Littlejohn tax manager Chris Riley criley@littlejohnllp.com If you are considering any significant capital expenditure, please contact us to ensure you receive your claim in full.
