Finance Bill Tracking Service 2009 | Budget 2009

BN04 CAPITAL ALLOWANCES: PLANT AND MACHINERY: TEMPORARY FIRST-YEAR ALLOWANCES

Who is likely to be affected?

1. Businesses investing in plant and machinery between April 2009 and April 2010.

General description of the measure

2. Legislation in Finance Bill 2009 will introduce a new temporary 40 per cent first-year allowance (FYA) for expenditure on general plant and machinery. That is expenditure on plant and machinery that would normally be allocated to the main capital allowance pool.

3. The temporary FYA will be available to:

•    any individual carrying on a qualifying activity (this includes trades, professions, vocations, ordinary property businesses and individuals having an employment or office);

•    any partnership; and

•    any company.

Operative date

4. The temporary FYA will apply to qualifying spending incurred in the 12 month period beginning on 1 April 2009 for the purpose of corporation tax, and on 6 April 2009 for the purpose of income tax.

Current law and proposed revisions

5. Capital allowances allow business to deduct the costs of capital assets, such as plant and machinery, against their taxable income. They take the place of commercial depreciation, which is not allowed for tax.

General plant and machinery

6. Since 1 April 2008 (corporation tax) or 6 April 2008 (income tax) most businesses, regardless of size, have been able to claim the new Annual Investment Allowance (AIA) on the first £50,000 spent on plant or machinery (subject to certain exclusions). Businesses have been able to claim the AIA in respect of special rate expenditure such as long-life assets, and integral features, as well as on general plant and machinery.

7. Where businesses spend more than £50, 000 in any chargeable period, any additional expenditure will be dealt with in the normal capital allowances regime, entering either the main pool or "special rate" pool, where it will attract writing-down allowances (WDAs) at the appropriate rate.

8. The main rate of plant and machinery WDA is currently 20 per cent per annum on a reducing balance basis. For "special rate" expenditure the rate of plant and machinery WDA is currently 10 per cent per annum on a reducing balance basis.

9. Businesses incurring expenditure in excess of the AIA cap that would normally be allocated to the main pool and qualify for a 20 per cent WDA in the 12 month period beginning on 1 April 2009 and 6 April 2009 will now be able to claim a 40 per cent FYA instead.

Exclusions

10. As with previous and existing first-year allowances there are exceptions where the expenditure will not qualify for the temporary first-year allowance, the main exceptions include "special rate" expenditure (including long-life assets and integral features), expenditure on cars, and on assets for leasing.

Further advice

11. If you have any questions about this change, please email joy.guthrie@hmrc.gsi.gov.uk or malcolm.smith3@hmrc.gsi.gov.uk or telephone 020 7147 2610. Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk