Capital Allowances what is available?

June 2009 Tax Alert

This alert provides a quick overview of the tax allowances now available for purchases of capital equipment.

Annual Investment Allowance

This allowance was introduced in April 2008 and provides an allowance of 100 per cent on up to £50,000 of expenditure on plant and equipment – there is exclusion for cars, but no other major assets.

A few words of warning:

1. For businesses that have small profits and do not want to claim allowances that will put them into loss, a partial claim may be appropriate.

2. To prevent large businesses dividing up to claim £50,000 allowance in many new companies, the allowance is shared in groups of companies and between connected businesses.

3. AIA is not available to a partnership which includes any member who is not an individual. It is not uncommon to have a limited company partner in some partnerships, particularly in the farming sector, so claimants should be aware that such a partnership is specifically excluded from claiming AIA.

First year allowance 40%

The Chancellor announced a 40 per cent first year allowance in the Budget, which applies to expenditure from April 2009 to 2010.

Combining the two allowances AIA and 40% FYA

If you spend more than £50,000 you can combine the two allowances (for one year to April 2010). You can claim the 100% AIA on the first £50,000 and 40% on any qualifying balance over this amount.