A SIMPLE GUIDE OF PROPOSED CHANGES TO THE CAPITAL ALLOWANCES REGIME
This is a basic guide and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
The capital allowances regime has undergone some significant changes in recent years. The most significant changes were introduced in the Finance Act 2008 but further changes were also introduced in subsequent Budgets.
Annual investment allowance
The Annual investment allowance (AIA) was originally introduced in the Finance Act 2008. AIA is available to small and medium-sized enterprises (SMEs) and entitles them to claim 100% relief on capital expenditure up to
certain monetary limits. Since inception, the AIA threshold has changed twice and the appropriate limits are as follows:
|Date Expenditure incurred:||
|Companies: On or after 1 April 2012Unincorporated: On or after 6 April 2012||
|Companies: 1 April 2010 – 31 March 2012Unincorporated: 6 April 2010 – 5 April 2012||
|Companies: 1 April 2008 – 31 March 2010Unincorporated: 6 April 2008 – 5 April 2010||
If the basis period straddles 1 April for companies, or 6 April for unincorporated entities, the AIA must be time-apportioned accordingly. As a result of the reduction of the AIA limit in April 2012, it is important to
understand how the rules will operate where an accounting period straddles that date:
|Example: Giacami Ltd has a year-end of 30 September 2012. Its maximum entitlement to the AIA for the period is as follows:6/12 x £100,000 (annual limit to 31 March 2012) = £50,000
6/12 x £ 25,000 (annual limit to 30 September 2012) = £12,500
The maximum AIA that may be claimed in the period is, therefore, £62,500. However, where there has been a reduction in the AIA limit, the amount of expenditure that may qualify for AIA in the component period following the change is restricted looked at in isolation.
So, continuing the example, let us assume that Giacami Ltd made a single acquisition of plant during the year; a new lorry costing £60,000.
If the lorry was acquired before 1 April 2012, the amount of AIA due for the year would be £60,000, as this falls within the maximum entitlement of £62,500.
However, if the lorry was bought on or after 1 April 2012, the amount of AIA due would be restricted to £12,500, with the balance of £47,500 attracting writing down allowance.
An important point to note is that the AIA may be allocated in the most beneficial way.
| Example:Brendan Ltd incurs the following expenditure on plant and machinery during the year ended 30 September 2012:
Brendan Ltd should use its entitlement to AIA against the assets which attract the lower rate of writing down allowance (WDA) first and claim the higher WDA on the additions to the general pool.
Enhanced Capital Allowance
100% capital allowances are available on for expenditure on certain categories of new plant and machinery. If you would like further details on any of these, please contact us:
|Energy Saving Plant and Machinery||The equipment be new and meet the eligibility criteria.|
|Low emission cars||The car must be new, emit 100g/km or less and be acquired before 31 March 2013.The car must be new and acquired before 31 March 2013.
An extension to the scheme was announced in the 2012 Budget. However, the CO2 threshold has been reduced from 110g/km to 95g/km.
|Zero emission goods vehicles||The vehicle must be new and acquired between 1 April 2010 and 31 March 2015 (or 6 April 2010 and 5 April 2015 for unincorporated entities).|
|Plant and machinery installed at a gas refuelling station to refuel vehicles with biogas, natural gas or hydrogen||The plant must be new. The scheme was due to expire on 31 March 2012 but it was announced in the 2012 Budget that it would be extended for a further 2 years until 31 March 2015.|
|Environmentally beneficial plant and machinery||The equipment must be new and meet the eligibility criteria.|
|Capital expenditure on Research and Development (Research and Development Allowance (RDA))||Contact us for details of requirements.|
|Business premises renovation allowance||Available for expenditure on renovated disused or derelict properties in certain disadvantaged areas. The scheme was due to expire on 11 April 2012 but it was announced in the Budget that this would be extended for a further 5 years until 2017.|
|Flat conversion allowance||For expenditure on converting unused space above shops and other commercial premises into residential flats. The government announced in the Budget 2011 that this allowance will be withdrawn “after 2012”.|
As announced in the Autumn Statement 2011, legislation will be introduced in Finance Bill 2012 to provide 100 per cent first-year allowances for trading companies investing in plant or machinery for use primarily in designated assisted areas within certain Enterprise Zones. These are:
- Royal Docks, London
- Irvine, Scotlnd
- Nigg, Scotland
- Dundee, Scotland
- Deeside, North Wales
The allowances will be available from 1 April 2012.
Writing Down Allowance (WDA)
Expenditure on qualifying plant and machinery, which is not eligible for either AIA or enhanced capital allowances is put into a pool of expenditure, on which writing down allowances (WDA) may be claimed.
The rate of writing down allowances on both the general and reduced rate pools has been reduced with effect from 1 April 2012 (6 April 2012 for unincorporated entities).
There are two separate pools, as follows:
- Main Rate Pool – for expenditure on general plant and machinery
- Reduced Rate Pool – for expenditure on the following:
- integral features of buildings and structures, i.e:
- an electrical system (including a lighting system);
- a cold water system;
- a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system;
- a lift, escalator or moving walkway; or
- external solar shading
- expenditure on thermal insulation
- expenditure on long-life assets (assets with an expected life of 25 years or more)
- from 6 April 2009, expenditure on certain cars (see below).
The rates are as follows:
|General Pool||Reduced Rate Pool|
|From 1 April 2012(From 6 April 2012 for unincorporated businesses)||18%||8%|
|Up to 31 March 2012(Up to 5 April 2012 for unincorporated businesses)||20%||10%|
Hybrid rates will need to be calculated if an accounting period straddles the date that the rate of WDA changes.
|Example:Liberty Ltd has an accounting period of 31 December. What would be its WDA rate for general pool for the year ended 31 December 2012?3 months @ 20% 5.00%
9 Months @ 18% 13.50%
Hybrid rate 18.50%
If the residual vale of either the general pool or the reduced rate pool is less than £1,000, a writing down allowance equal to the full amount of the pool may be claimed.
From 1 April 2009 (6 April 2009 for unincorporated entities)
The rules were changed by Finance Act 2009 for cars purchased from 1 April 2009 (6 April 2009 for unincorporated entities). The rate of capital allowances which may be claimed on cars are dependant on the car’s CO2 emissions of the cars. The car will either be eligible for 100% first year allowances (FYA) or will go either into the general or reduced rate plant and machinery pools, as follows:
|CO2 emissions of the Car:||Capital allowances|
|Cars with CO2 emissions of 110g/km or less||100% FYA|
|Cars with CO2 emissions of between 111g/km and 160g/km||General Pool|
|Cars with CO2 emissions of 161g/km or more||Reduced rate pool|
It was announced in the Budget that with effect from April 2013, the capital allowances on cars will be as follows:
|CO2 emissions of the Car:||Capital allowances|
|Cars with CO2 emissions of 95g/km or less||100% FYA|
|Cars with CO2 emissions of between 96g/km and 130g/km||General Pool|
|Cars with CO2 emissions of 131g/km or more||Reduced rate pool|
Rules before 1 April 2009 (6 April 2009 for unincorporated entities)
Prior to the change in the rules with effect from April 2008, the capital allowances regime for cars was as follows:
- Cars costing less than £12,000 went into the general pool
- Cars costing more than £12,000 or with private use were de-pooled
- The writing down allowance available on cars was the same as the general pool rate,
- The writing down allowance on cars was restricted to £3,000 if the cost or written down value brought forward exceeded £12,000
The above rules will continue to apply for cars acquired before 1 April 2008 (6 April 2008) for unincorporated entities) for accounting periods beginning before 1 April 2014 (6 April 2014). After this date, any written down value brought forward will be transferred into the main rate plant and machinery pool.
Long Life Assets
Long-life assets are defined as assets with a useful economic life of 25 years or more. The rate of writing down allowance is changing with effect from 1 April 2012 (6 April 2012 for unincorporated businesses) and the rates are as follows:
|Up to 31 March 2012(Up to 5 April 2012 for unincorporated businesses)||10%|
|From 1 April 2012(From 6 April 2012 for unincorporated businesses)||8%|
Long life assets are pooled with other reduced-rate assets in the reduced rate pool.