Tax Update - Capital allowances

A major reform is taking place for capital allowances. From 2008/09, writing down allowances on qualifying plant and machinery (P&M) will be reduced from 25% to 20% pa. Long-life asset allowances will increase from 6% to 10% pa. The 50% rate of first year allowances for small businesses will be available for a further year, on qualifying P&M expenditure incurred on or after 1 April 2007 for companies, and on or after 6 April 2007 for other businesses.

In a surprise move, the industrial and agricultural buildings allowances regimes will gradually be phased out and finally withdrawn in 2011. Most balancing events occurring after 21 March 2007 will not give rise to balancing adjustments.

From 2008/09 allowances will be introduced at a rate of 10% pa on the cost of certain fixtures integral to buildings. Also, a payable tax credit will be introduced for losses resulting from capital expenditure on green technologies. The scope of both provisions are subject to consultation.

A new annual investment allowance will be introduced from 2008/09 for expenditure of up to £50,000 on qualifying P&M of small and medium-size businesses. Further details are to be announced.

From 11 April 2007, 100% business premises renovation allowances will be available on qualifying expenditure incurred on the renovation of business properties that have been vacant for at least one year, in designated disadvantaged areas of the UK. This flows from legislation announced back in 2005 but which awaited state aid approval until now.

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