Guide to Capital Allowance Changes in 2007 Budget

To help you to invest and develop your business, the government introduced Capital Allowances.  This short guide outlines the key facts.

You are able to deduct a proportion of the cost of certain investments and purchases from your taxable profits.  These deductions are known as Capital Allowances.

In order to compete effectively in a climate which currently provides excellent conditions for growth, investment is a very attractive option especially given the benefits of Capital Allowances.

It’s important that you make full use of the Capital Allowances available to you.  Although the Capital Allowances system has it’s complexities, it is relatively simple to understand the key features and this article provides the information you need in an easily digestible format.

With leasing, the leasing provider will claim the capital allowances and pass them on to you as lower lease payments. This can be a very attractive benefit, especially if:

• Your business is unable to make the full use of Capital Allowances if profits are too low to fully offset against.
  
  
• You prefer to get the benefit of improved cash flow immediately rather than claiming Capital Allowances later.

You can generally deduct the full cost of your lease payments from taxable income as a trading expense.

The table below summarises the Capital Allowances that may be open to you.

Main Capital Allowances

Motor Cars - On reducing balance (max. £3,000 p.a. per car) - 25%

Plant and Machinery

Small firms

Allowance for the first year - 50%
Writing down allowance on reducing balance - 25%

Medium firms

Allowance for the first year - 40%
Writing down allowance on reducing balance - 25%

Large firms

Writing down allowance only on reducing balance - 25%

Long Life Assets (Expected life of more than 25 years)

Allowance for first year - 6%
Writing down allowance for subsequent years on reducing balance - 6%

Energy Saving Technology - All firms - 100%

Electric and Low Emission Cars - Registered on or after 17 April 2002 - 100%

Buildings

Industrial buildings and qualifying hotels - 4% of building cost p.a.
Commercial/Industrial buildings in an enterprise zone - 100% of building cost
Agricultural buildings - 4% of building cost p.a.

Research and Development - 100%.