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The Capital Expenditure of a business is not deducted when arriving at the taxable profit. Instead allowances are given against tax, based upon date of expenditure as follows:

Annual Investment Allowance (AIA):

100% relief for capital expenditure – subject to certain exclusions, notably cars (see below).£25,000 from April 2012

  • £250,000 from January 2013
  • £500,000 from April 2014
  • £200,000 from January 2016
  • £1,000,000 from January 2019
  • £200,000 from January 2022

Amount is pro-rated for long or short accounting period.

It is provided on a group wide basis, so groups of companies have to decide upon the allocation of the allowance between their members.

100% First Year Allowance:

In addition to the AIA 100% relief is available on the following capital expenditure:

  • new and unused cars with low CO2 emissions (less than 75g/km) or zero emission (electric) vehicles.
  • energy saving equipment that’s on the energy technology product list.
  • water saving equipment that’s on the water efficient technologies product list.
  • plant and machinery for gas refuelling stations, e.g. storage tanks, pumps.
  • gas, biogas and hydrogen refuelling equipment.
  • new zero-emission goods vehicles.

The specified plant and machinery is detailed on lists produced by the government.

Plant and Machinery Writing Down Allowances:

Standard Rate 18%           

Special Rate 6%

Writing down Allowances are given on a reducing balance basis. The Special Rate applies to Integral Features (see below), long-life assets, thermal insulation of buildings and, from April 2009, higher emission cars (see below). The Standard Rate applies to everything else.

Integral Features:

Integral features are:

  • an electrical system (including a lighting system),
  • a cold water system,
  • a space or water heating system, a powered system of ventilation, air cooling or air purification, and any floor or ceiling comprised in such a system,
  • a lift, an escalator or a moving walkway,
  • external solar shading.

Short life assets:

Rather than treating an asset as part of a general pool, assets with an expected life of under 8 years can be recorded and receive tax relief on an individual basis, relief will be accelerated when they are disposed of or scrapped. An election in writing is required to take advantage of this accelerated relief.

Cars:

First Year Allowance Thresholds:

  • Purchased from 1st April 2018 – Less than 50 g/km
  • Purchased before 1st April 2018 – Less than 75 g/km
  • Purchased before 1st April 2015 – Less than 95 g/km
  • Purchased before 1st April 2013 – Less than 110 g/km

Main Rate Thresholds*:

  • Purchased from 1st April 2018 – Between 50 g/km and 110 g/km
  • Purchased before 1st April 2018 – Between 75g/km and 130 g/km
  • Purchased before 1st April 2015 – Between 95 g/km and 130 g/km
  • Purchased before 1st April 2013 – Between 110 g/km and 160 g/km

*For the purchase of Second Hand Vehicles the lower threshold is reduced to 0 g/km.

Cars with emissions above the upper threshold receive Writing Down Allowances at the special rate and are held in a special pool of assets.

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Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice.  Please contact us if you have any questions about the information set out above.

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