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Capital allowance - key changes from April 2008

Tax Alert

This information sheet sets out some of the far-reaching changes to the capital allowance system.

Annual Investment Allowance (AIA)- Many businesses will benefit from the new annual investment allowance, which will provide 100% deduction for expenditure on plant and machinery (except cars). The relevant legislation allows £50,000 to be written off in any year that qualifying investment is he's made. Individuals most partnership and companies can claim. (Partnerships made up of individuals, companies or trusts will not be eligible for this new allowance.)

Annual Writing down Allowance (WDA)- the rate at writing down allowance given on plant and machinery in the capital allowance pool is reduced from 25% to 20% with effect from 1 April 2008 for companies and 6th April 2008 for income tax businesses.

Small Pool Write Off- if the written down value of expenditure in a pool falls to £1000 or less this can now be written off.

100% write off Low Emission Cars- the existing allowance of 100% for qualifying new cars is extended to 31st of March 2013. The CO2 emissions rating for qualifying vehicles is reduced to 110 g/km.

Integral Features Building - certain expenditure on fixtures in buildings is now to be classified as integral features. This type of expenditure will qualify for a reduced rate of writing down allowance of 10%. The following are listed in the legislation as integral features -- an electrical system including a lighting system; a cold water system; a space or water heating system (includes system of ventilation air cooling or air purification); a lift, escalator or moving walkway; external solar shading.

Industrial and Agricultural Buildings- from the tax year 2007-08 the existing industrial buildings and agricultural buildings allowances are being phased out. The final year of claim will be 2010-11.

Enhanced Capital Allowances- the existing scheme of 100% first-year allowance for expenditure on energy efficient technology and water saving technologies continues. Water technologies will include waste water recovery and reuse systems. The energy technology list will be revised to include four new subcategories; compressed air master controllers; compressed air flow controllers; heat pump dehumidifiers; and white LED lighting. A full list of qualifying technologies can be found at www.eca.gov.uk.

Hilton Sharp & Clarke