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Finance Act 2014

Background Note

18.Capital allowances allow the cost of capital assets to be written off against taxable profits. They take the place of depreciation charged in the commercial accounts, which is not allowed for tax.

19.Most businesses are entitled to a 100 per cent allowance, the Annual Investment Allowance (AIA), for their investment in most plant or machinery up to an annual limit, which for the period April 2014 to 31 December 2015 has been temporarily increased to £500,000. For expenditure above that limit, writing-down allowances (WDA) are available. These are given at the main rate of eighteen per cent or the special rate of eight per cent per annum.

20.First-year allowances, which are generally called enhanced capital allowances or ECAs, are available for expenditure on certain types of plant or machinery as an alternative to AIA and WDA. ECAs accelerate the rate at which tax relief is available for capital spending and allow 100 per cent of the cost of an investment to qualify for tax relief against a business’s taxable profits of the year in which the investment is made. They provide business with a valuable cash-flow benefit.

21.Certain ECAs are classified as State aids and have been designed to comply with the GBER. The GBER exempts certain State aid measures from prior notification to the European Commission if various conditions are met. As part of a State Aid Modernisation process the European Commission has revised the existing GBER 800/2008 and a new version 651/2014 took effect from 1 July 2014. The revisions are designed to stimulate economic growth, job creation and other objectives of common interest, without distorting competition. It also reduces the administrative burden for Member States and gives the beneficiaries of aid greater certainty.

22.Whilst similar to its predecessor, the new GBER contains a number of differences which need to be reflected in domestic legislation for zero-emission goods vehicles and enterprise zones to ensure continued State aid compliance.

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