Important
capital allowances changes, already announced last year,
were broadly confirmed in the March 2008 Budget, and
take effect from 1 April or 6 April 2008 (for corporation
tax and income tax respectively). Some will gain under
the new
rules and others will lose out.
The
new annual investment allowance (AIA) offers
immediate tax relief for capital expenditure of up
to £50,000
per year, effectively as if it were revenue expenditure.
(Care
is needed with transitional rules; the allowance accrues
from this April, but the full £50,000 is only
available for periods ending on or after 31 March 2009.)
The
new rules relating to ‘integral features’ may
be perceived as imposing a restriction rather than
providing new opportunities but, again, the reality
will be different for all but the largest businesses. Very often, the
new regime will simply offer full and immediate tax
relief
for expenditure
that previously did not qualify at all.
Example: A
business upgrades its general office lighting systems
and
spends £30,000
in the autumn of 2008. If the costs had been incurred a year earlier,
it is likely that no relief would have been due.
However, when tax computations are drawn
up to 31 December 2008, the company can claim immediate relief for
the whole £30,000.
So
the new rules give both a cash flow advantage and permanent
new relief
for some costs. If expenditure
on plant and machinery exceeds £50,000
in a given year then businesses may allocate
the AIA
first to cover the integral features
so that the remaining expenditure will qualify for writing-down allowances
at 20% rather than 10%. Only those businesses
spending considerably more than £50,000
in the year will lose out, with some relief being given at 10% or
20% rather than at 25% or higher rates
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