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Plant and Machinery changes

The 50% rate of first year capital allowances has been extended for a further 12 months from April 2007 on expenditure incurred by small businesses on most plant and machinery, thereby helping save tax on assets acquired for the business.

From 2008/09, it is proposed that first year allowances for small and medium sized businesses will be replaced by an annual investment allowance of £50,000 per year, following consultations. What this means for businesses is unclear at this time.

Ordinary writing down allowances for plant and machinery in the general pool will be reduced to 20% from 2008, increasing the tax burden on businesses. Those businesses that invest in long life assets will benefit from an increase in capital allowances from 6% to 10% per annum in April 2008.

Industrial Buildings (IBA) and Agricultural Buildings Allowances (ABA) to be withdrawn


Included in the major business reform package announced by the Chancellor is the gradual withdrawal of IBA’s and ABA’s over the next four years, which could increase the tax burden for many businesses, including those with industrial property or hotels.

As a first step, balancing adjustments and the re-calculation of written down allowances are withdrawn in respect of balancing events occurring on or after 21 March 2007 with a few exceptions.

Allowances on plant integral to a building


From April 2008 it is proposed to set writing down allowances at 10% for certain fixtures integral to a building, which can include radiators, heating systems and emergency signs. The details will be subject to consultation. This may well increase the tax burden for many businesses currently able to claim 25% writing down allowances on certain assets integral to a building.

Business Premises Renovation Allowances (BPRA)


BPRA will provide 100% initial allowances on capital expenditure incurred, on or after 11 April 2007, on the renovation or conversion of qualifying business properties, which will ensure full tax relief will be enjoyed at the time the property is renovated rather than when later sold.

Research and Development (R&D) Tax Relief to be extended


Proposals were included in the budget to benefit those businesses undertaking research and development. From 2008 it is proposed to increase the rate of tax relief available for large companies to 130% of qualifying R&D expenditure and 175% for smaller businesses.