Capital allowances on plant and machinery

Additional capital allowances are to be available for expenditure incurred by a qualifying activity in the 12 month period commencing 1 April 2009 for companies and 6 April 2009 for individuals and partnerships. Most businesses have since 1 April 2008 (corporation tax) or 6 April 2008 (income tax) been able to claim the new Annual Investment Allowance (AIA) on the first £50,000 spent on most plant and machinery. Expenditure on qualifying plant and machinery not covered by the AIA will be eligible for a temporary first year allowance (FYA) of 40% instead of 20% Writing Down Allowance (WDA). The FYA will not apply for expenditure on integral features, cars, long life assets and assets for leasing.
Comment

The availability of additional capital allowances will be attractive to larger or plant intensive businesses where the AIA is insufficient, particularly groups of companies where one AIA has to be shared between all companies.

Taxation of business travel

Changes are being made to the capital allowance treatment of cars. The changes will have effect from 1 April 2009 for corporation tax purposes and 6 April 2009 for income tax. The special rules that restrict the amount of capital allowances for cars costing more than £12,000 will be abolished.

• Expenditure on cars with CO2 emissions of 160g/km or below will be allocated to the plant and machinery main pool (ie will obtain 20% WDA).
• Expenditure on cars with CO2 emissions above 160g/km will be allocated to the ‘special rate pool’ (ie will obtain 10% WDA).
• Cars that have an element of non-business use will continue to be dealt with in a single asset pool to enable the private use adjustment to be made but for expenditure incurred from April 2009 onwards the rate of WDA will be determined by the car’s CO2 emissions.

Expenditure incurred before April 2009 will in general continue to be subject to the existing ‘expensive’ car rules for a transitional period of around five years. If any expenditure remains in a single asset pool at the end of the transitional period (unless there is any non-business use of the car) it will be transferred to the main capital allowances pool. From April 2009 the special rules that restrict the amount of lease rental payments that can be deducted for tax purposes for a car with a retail price exceeding £12,000 will be reformed. The restriction will be changed to a flat rate disallowance of 15% of relevant payments and apply only in respect of cars with CO2 emissions above 160g/km.

The provisions also aim to ensure that only one lease restriction will apply where there is a chain of leases and that in limited circumstances there is no disallowance. One example of this is where a business rents such a car on short term hire not exceeding 45 days. Expenditure under leases that commenced prior to 1 or 6 April 2009 (that is where the car is made available before April 2009) will continue to be subject to the existing rules. Motorcycles are to be excluded from the definition of cars and will not therefore be subject to these rules. Expenditure incurred on motorcycles on or after 1 or 6 April 2009 will qualify for the AIA or alternatively the temporary FYA.
Comment

The 100% FYA regime for low emission cars was extended to 31 March 2013 in Budget 2008 and therefore will still apply. The current threshold for CO2 emissions is 110g/km (so not many cars qualify).