Capital allowances: getting the timing right

‘Capital allowances’ describes the deduction that is available for expenditure on business equipment, in lieu of depreciation.

The majority of businesses are able to claim a 100% Annual Investment Allowance (AIA) on the first £50,000 of expenditure on most types of plant and machinery (except cars). In addition, there are specific 100% allowances available for some investments, including energy-saving equipment and low-emissions cars. Plant and machinery not qualifying for 100% allowances are generally subject to an annual writing down allowance of 20% on the reducing balance, although there is a reduced rate of 10% for certain categories, including cars with CO2 emissions exceeding 160 g/km, long life assets and certain specified integral features of buildings.

A temporary first year allowance of 40% applies to expenditure on plant and machinery in excess of the AIA limit incurred in the 12 months beginning on 1 April 2009 (corporation tax) or 6 April 2009 (income tax). This allowance applies to expenditure which would otherwise have been allocated to the main 20% pool but excludes cars and assets for leasing.

The increase in the top rate of tax to 50% means that for some businesses there is added value in delaying a purchase (or disposal) into the next accounting year. For others, a purchase just before the end of the current accounting year will mean the allowances will usually be available a year earlier than if the purchase was made just after the year end. In the same way, the disposal of an asset may trigger an earlier claim for relief or even an additional charge to tax.

Contact us for more advice on the allowances that may be available to you.