Background
3.Capital allowances take the place of depreciation charged in the commercial accounts, which is not allowed for tax.
4.Most businesses are entitled to an annual 100 per cent allowance, the annual investment allowance (AIA), for their investment in most plant and machinery (P&M) up to an annual limit. The limit is £250,000 for the two year period 1 January 2013 to 31 December 2014. Where a business’s expenditure exceeds the AIA limit, writing-down allowances (WDA) are available, at either the main rate of 18 per cent or the special rate of 8 per cent per annum.
5.As an alternative to AIA and WDA there are a number of 100 per cent first-year allowances (FYAs) available for expenditure on certain types of P&M. FYAs provide a timing advantage over normal WDAs and incentivise investment in particular types of plant and machinery.
6.There are a number of general exclusions to FYAs. These exclusions include expenditure incurred on both ships and railway assets. The exclusion of these categories of expenditure arises because they have received beneficial treatment elsewhere in the capital allowances code. That beneficial treatment has however recently ceased and this section ensures that investors in these assets are treated consistently with others investing in similar assets in different industry sectors.
