New Capital Allowances Regime from April 2012
As you are probably aware, there have been some major changes to capital allowances claims over the last few years and there are further significant changes proposed from 6 April 2012 (1 April 2012 for companies) and these are summarised below with some important tax planning points.
Writing Down Allowance
This is scheduled to reduce from 20% (2011/12) to 18% with effect from April 2012. The writing down allowances for long life assets of 10% (2011/12) will reduce to 8% from April 2012.
Annual Investment Allowance (AIA)
Relief is now given at 100% on an annual investment allowance of £100,000 p.a. and scheduled to be £25,000 from April 2012 of capital expenditure and is available to businesses of all sizes on plant, machinery and fixtures, excluding motor cars and long life assets.
Enhanced Capital Allowances on Energy Saving and Environmentally Beneficial Plant
The rate continues at 100% (and does not count towards use of the AIA ceiling limit) but loss making companies can now surrender their allowances for repayable tax credits, similar to research and development tax credits already available.
Motor Vehicles
Allowances are now available based on the car’s CO2 emissions as set out below:
1. 100% First Year Allowances will continue for cars with emissions up to 110g/km and for new zero emission commercial vehicles.
2. Commercial vehicles (other than those which are new and have zero emissions) are treated as plant and machinery and can qualify for the AIA.
3. Cars with emissions between 111g/km to 160g/km will be included within the general plant and machinery pool and qualify for the 20% (18% from April 2012) annual writing down allowance. Such cars will not qualify for the Annual Investment Allowance.
One other point to consider is the definition of a van, especially in the context of double cabs and other hybrids. This is complex and depends on the make and model of the specific vehicle. Note that it is the purpose for which the vehicle is designed that is important.
Transitional Periods
Where an accounting period straddles 1 April 2012 (companies) and 6 April 2012 (individuals/partnerships) the writing down allowance will be calculated by time apportioning the old and the new rates. In practice this means that to maximize the allowance on all but the smallest items expenditure needs to be incurred on or before 31 March 2012.
Planning Points
• Certain items, in particular cold water supplies and electrical wiring now qualify for plant and machinery allowances, (albeit for only a 10% - 8% from April 2012 writing down allowance unless the items in question qualify for the annual investment allowance) and relevant expenditure will need to be identified.
• To the extent possible new motor cars purchased, leased or hired for more than 45 days should be of a type producing emissions of 160g/km or less.
• Manufacturers and distributors of energy saving plant on which a 100% first year allowance is available usually issue a certificate of compliance which needs to be dealt with when producing tax computations.
• As the annual investment allowance is scheduled to be significantly reduced in April 2012 (from £100,000 p.a. to £25,000) plant and machinery additions should be incurred on or before 31 March 2012 to avoid the significant restriction.
The new regime generally favours smaller businesses in terms of both the rate of allowance due (100% up to the £100,000 p.a. limit) and its simplicity. For larger projects of capital investment advice should be sought to ensure the availability of allowances is maximised.