1.Section 24 provides for a temporary first-year capital allowance at the rate of 40 per cent for a period of one year for spending by businesses on most plant and machinery that would normally qualify for a writing-down allowance at the 20 per cent rate. The provision applies to spending on or after 1 April 2009 for businesses within the charge to corporation tax and on or after 6 April 2009 for businesses within the charge to income tax.
2.Subsection (1) explains that Part 2 of the Capital Allowances Act 2001 (CAA) has effect as if mention of the section appeared in section 39 and mention of the section and the 40 per cent rate appeared in the Table in section 52(3). This is because Part 2 will not actually be amended as the section is only a temporary measure but all the provisions in Part 2 are to apply for the temporary period as if it was a new section in Part 2.
3.Subsection (2) provides the conditions that the expenditure must meet in order to be first-year qualifying expenditure under this section. The conditions are that the expenditure is:
incurred in 2009-2010;
not within any of the standard general exclusions in section 46(2) of CAA (these include spending on cars and on assets for leasing);
not special rate expenditure (as defined in section 104A of CAA, which includes spending on long-life assets and integral features); and
not first-rate qualifying expenditure under any other provision in Chapter 4 of Part 2 of CAA.
4.Subsection (3) explains what is meant by the incurring of expenditure in 2009-2010.
5.Subsection (4) ensures that property lessors are not prohibited by the general exclusion on leased assets from claiming the temporary first–year allowance in respect of expenditure on background plant or machinery for a building (as defined in section 70R of CAA) provided that the expenditure is not special rate expenditure.
6.Subsection (6) provides that, in determining whether expenditure is incurred in 2009-10, any effect of section 12 of CAA is to be disregarded. Section 12 normally deems pre-commencement business expenditure to have been incurred on the first day when the business starts. Thus, if the pre-commencement expenditure were incurred before 1 April 2009 (for corporation tax) or 6 April 2009 (for income tax), but the business commences after those dates, this subsection would stop the pre-commencement expenditure from qualifying for the temporary first-year allowance.
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.