2008 Budget Commentary - Capital Allowances
12 March 2008
As from 6 April 2008, new rules will apply to the way in which you are able to claim capital allowances for the purchase of certain qualifying assets.
A new Annual Investment Allowance has been introduced. This will apply from 1 April 2008 for businesses within the charge to corporation tax and from 6 April 2008 for businesses within the charge to income tax. Essentially businesses will be able to write off 100% of their expenditure on plant and other equipment (excluding most cars) up to an annual limit of £50,000.
The Annual Investment Allowance will be apportioned in the first year if your year-end is not 31 March. For instance if you should spend £24,000 on a qualifying asset in April 2008 and your year end is June 2008, one quarter of the £24,000, i.e. £6,000 will qualify for the 100% write off, the balance will be carried forward in your capital allowances pool.
There are also changes to the rate of writing down allowances (WDA) claimed from 1 April 2008 (for companies) and 6 April (other businesses).
- WDA on plant and machinery will be cut from 25% to 20%.
- WDA on certain fixtures integral to a building will be cut from 25% to 10%.
Again, where your accounting period is not 31 March (for companies) or 5 April (other businesses) the computation will be apportioned on a time basis for the old and new rates.
The effect of the changes to writing down allowances will be to establish two pools of expenditure, one qualifying for WDA at 10% and the other at 20%.
Agricultural Buildings Allowances (ABAs) and Industrial Building Allowances (IBAs)
The Government announced the phased withdrawal of ABAs and IBAs from 6 April 2008. Currently the rate of allowances on agricultural or industrial buildings is 4% on the original cost. The rate of ABAs and IBAs will be reduced as follows until its complete withdrawal in 2011/12.
- 2008/09 3%
- 2009/10 2%
- 2010/11 1%
Cars
There are a number of changes to the way capital allowances are calculated for cars.
· A first year allowance of 100% for cars with CO2 emissions not exceeding 110g/km. This 100% allowance is to be extended to 31 March 2013.
· No restriction on capital allowances for cars costing over £12,000 where the CO2 emissions do not exceed 110g/km.
From 2009/2010 there are proposals to reform the capital allowance treatment of all cars. Expenditure on cars with CO2 emissions above 160g/km will attract a 10% writing down allowance. Expenditure on cars with CO2 emissions of 160 g/km or below will attract a 20% writing down allowance. This will mean that for 2009/2010 writing down allowances for cars at 10%, 20% or 100% depending on their CO2 emissions.
If you have any queries concerning any of the above mentioned issues, or would like advice on the best possible course of action in particular areas, please contact Brian King, Tax Partner at Ellacotts LLP on 01295 250401 or e-mail bking@ellacotts.co.uk.
