Capital allowances
Reducing your tax bill
As a business you can claim tax allowances, called capital allowances, on certain purchases or investments.
This means you can deduct a proportion of these costs from your taxable profits and reduce your tax bill.
Capital allowances are available on plant and machinery, buildings - including converting space above commercial premises to flats for renting - and research and development.
The amount of the allowance depends on what you're claiming for. In some cases, the rates are different in the year you make the purchase from those in subsequent years.
From 1 April 2008 for corporation tax and 6 April 2008 for income tax, changes apply to the rates of capital allowances. Allowances for plant and machinery have been reduced to 20 per cent, allowances for long-life assets increased to 10 per cent and a new classification of features integral to a building has been introduced at a rate of 10 per cent.
The amount of relief claimable under industrial and agricultural buildings allowances is reduced by one quarter, as part of phasing them out in full by 2011. First-year allowances for small and medium-sized enterprises will be replaced by a new Annual Investment Allowance of £50,000 for most businesses regardless of size, giving relief on 100 per cent of the first £50,000 of expenditure.
Loss making companies investing in plant and machinery which qualifies for Enhanced capital allowances for environmentally beneficial and energy saving technologies will be able to surrender losses from qualifying expenditure for a cash payment of 19 per cent of the expenditure, subject to a cap of the higher of £250,000 or a company’s PAYE/National Insurance Contributions liabilities.
From April 2008, the rate of research and development tax credits increases from 125 per cent to 130 per cent for large companies and from 150 per cent to 175 per cent for SMEs (the SME increase is subject to approval from the European Commission and will be made effective by Treasury Order from a date not earlier than 1 April 2008).
Levels and bases of, and reliefs from, taxation are subject to change.
