Newsletter - September 07

CHANGES IN CAPITAL ALLOWANCES 

Owners of businesses should be aware of several important changes happening to the allowances which they are eligible to claim as a tax deduction when incurring capital expenditure.  This is relevant to both the self-employed and companies.  Currently certain businesses qualify for tax allowances at the rate of 4% on improvement expenditure to agricultural buildings and/or industrial buildings.  These allowances are being gradually phased out from 2008/09 and will be totally withdrawn from 2011/12 onwards.  Until 5^th April 2008 small businesses can claim a 50% First Year Allowance (FYA) for tax purposes on purchases of plant and machinery (40% for medium businesses), with 25% writing down allowance (WDA) thereafter.  This FYA is being withdrawn in 2008/09, to be replaced by a new Annual Investment Allowance (AIA).  It is likely that this new AIA will be a 100% allowance on the first £50,000 of qualifying expenditure, with only a reduced annual WDA of 20% being granted on any excess.  The main rate of WDA will also reduce to 20%.  There are important tax considerations here for any businesses planning capital expenditure in the next few years, and they may wish to review this prior to 5^th April 2008, in conjunction with their accountant.

Carson & Trotter

Chartered Accountants

20th September 2007

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