Background Note
7.Capital allowances allow the cost of capital assets to be written off against a business’s taxable profits. They take the place of commercial depreciation charged in commercial accounts. The main rate of capital allowances for general spending on plant and machinery is currently 20 per cent a year on the reducing balance basis. First-year allowances (FYAs) bring forward the time that tax relief is available for capital spending and allow a greater proportion of the cost of an investment to qualify for tax relief against a business’s taxable profits of the period during which the investment is made.
8.For a period of one year all businesses can claim 40 per cent FYAs on their investments in most plant and machinery. The period will run from 1 April 2009 to 31 March 2010 for businesses within the charge to corporation tax and 6 April 2009 to 5 April 2010 for businesses within the charge to income tax.
9.There are some exceptions, including spending on special rate expenditure (including integral features & long-life assets), all expenditure on cars and expenditure on assets for leasing.
10.In conjunction with the Annual Investment Allowance, which effectively provides a 100 per cent first-year allowance for the first £50,000 investment in most plant and machinery (apart from cars) and which was introduced in Finance Act 2008, this new temporary 40 per cent first–year allowance will provide a valuable increased cash-flow benefit for businesses investing in plant and machinery in 2009-2010.
