Home Budget 2007 Company Profile Services Accountancy Zone Business Zone Tax Zone IR35 Update News Articles Feedback Search Legal Notice How To Find Us Tax relief is given for expenditure incurred on the purchase of a capital asset in the form of a capital allowance. For individuals, where a business began before 6 April 1994 capital allowances for 1996/97 and earlier years are deducted from the assessment and not treated as expenses in the accounts. For businesses which started after this date and for all business in 1997/98 and later tax years, capital allowances are treated as trading expenses. For corporation tax purposes, capital allowances are always treated as trading expenses. The legislation relating to capital allowances was consolidated in the Capital Allowances Act 1990. The following items are amongst those qualifying for capital allowances: Enterprise zones. Most new buildings in an extant enterprise zone qualify for a 100% initial allowance. Plant and machinery. For the year ending 1 July 1998 expenditure on plant and machinery by small and medium sized enterprises qualifies for a first year allowance of 50% (or 12% if the allowance would otherwise be 6% under the rule mentioned below). Subject to this temporary provision, plant and machinery used in a business is generally "pooled" for capital allowance purposes and 25% writing-down allowances are given on the remaining value of the pool as a whole each year. Subsequently, until 1 July 2000 expenditure on plant and machinery by small and medium-sized enterprises qualifies for a first year allowance of 40%. Where, however, the allowance would normally be 6% there will be no increased first year allowance after 1 July 1998. Where a business spends more than £100,000 a year on assets with a working lift of 25 years or more, allowances on such assets will be reduced from 25% to 6%. For companies, the de minimis limit of £100,000 will be divided by one plus the number of associated companies. Small or medium-sized businesses are businesses that satisfy two of the following conditions: 1)  Turnover is not more than £11.2million 2)  Assets are not more than £5.6 million 3)  There are not more than 250 employees From 12 May 1998 to 11 May 2002 there will be 100% first year allowances for expenditure by small and medium-sized enterprises on machinery and plant for us primarily in Northern Ireland. Industrial buildings, agricultural buildings and hotels. These buildings currently attract writing-down allowances equal to 4% of the capital expenditure incurred in their construction for 25 years after their construction provided they are actually in qualifying use. Cars. Each car costing over £2,000 is pooled separately. Writing-down allowances on such cars may not exceed £3,000 per year. Cars costing £12,000 or less are put in a pool of their own. Commercial vehicles that are not cars are regarded as plant and machinery. Know-how and patents. These attract 25% writing-down allowances. Scientific research. This attracts a 100% first year allowance. There are also capital allowances available for mines, oil wells, dredging, cemeteries and crematoria. Landlord's fixtures. A tenant or lessee is entitled to capital allowances on the expenditure he or she incurs if, for the purposes of his or her trade, or to let, he or she installs a fixture which, on installation, becomes the landlord's fitting because it forms part of the fabric of the building. Landlord's contribution. If the landlord contributed towards the expenditure he or she will be entitled to that part of the allowance which represents the amount of his or her contribution. Lease acquired by way of assignment. Where a trader or lessor acquires a lease by way of assignment, and part of the price, is referable to the fixture, then he or she may become entitled to allowances. Where a lessor who is already entitled to allowances grants a new lease at a premium (part of which is referable to the fixture) the lessor and the lessee may elect to transfer the allowance to the lessee. Industrial buildings and structures. Where capital expenditure is incurred on the construction or purchase of an industrial building or structure a writing-down allowance will be available. Capital allowances can be carried forward by individuals as part of a trading loss where the business began after 5 April 1994, and in all cases from 1997/98 onwards. Companies can also carry capital allowances forward as part of a trading loss. For businesses that began before 6 April 1994, in tax years before 1997/98, where full effect cannot be given in any year, owing to no profits or gains being chargeable to tax for that year (or to the profits or gains chargeable being less than the allowance) then the allowance (or part of the allowance, as the case may be) will be carried forward as a deduction from the charge to profits or gains in subsequent tax years. A balancing charge applies when the machinery or plant (for which a capital allowance has been claimed) is sold, scrapped, transferred to private use, or where the trade is permanently discontinued. Assuming the pooling provisions do not apply, a balancing charge arises when the proceeds of the sale exceed the written-down value for tax purposes. In future, balancing charges will be treated as trade receipts. Any deficit is a balancing allowance which is added to the capital allowance for the year, and becomes allowable as a deduction from taxable profits. If any item which has been put into the pool is sold, the proceeds of the sale are deducted from the balance in the pool, unless the item is sold at a higher price than was paid for it originally, in which case only the original cost is deducted from the pool, the excess over and above that cost being treated as a capital gain. If a car is used for both business and private purposes, the balancing charge or allowance will be restricted to "an amount that is just and reasonable". Taxpayers who acquire short-life plant or machinery and expect to dispose of it within five years at less than its tax written-down value, may elect to have the capital allowances calculated separately from the main plant and machinery pool. The attraction is that, if a taxpayer disposes of a short-life asset for less than its tax written-down value, a balancing allowance will be available, whereas otherwise there would simply he an adjustment to the value of the pool. Election to de-pool must be made within two years of acquisition and is primarily intended for assets from which first year allowance is being withdrawn. Contact us for more information. [ Tax Zone Home]