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business. Businesses are eligible if they have annual receipts of
up to £83,000 and they will be able to continue to use the cash
basis until receipts reach £166,000. This is something we should
discuss with you in detail if you are eligible. Allowable payments
include most purchases of plant and machinery, when paid,
rather than claiming capital allowances.
Unincorporated businesses are able to choose to deduct certain
expenses on a flat rate basis. However, this is worth discussing
before opting for it, as the flat rates are not generous.
Claiming capital allowances
‘Capital allowances’ is the term used to describe the deduction
we are able to claim on your behalf for expenditure on business
equipment, in lieu of depreciation.
Annual Investment Allowance (AIA)
The maximum annual amount of the AIA has been set at a new
permanent rate of £200,000 from 1 January 2016. This means
up to £200,000 of the year’s investment in plant and machinery,
except for cars, is allowed at 100%. The AIA applies to
businesses of any size and most business structures, but there
are provisions to prevent multiple claims. Businesses are able to
allocate their AIA in any way they wish; so it is quite acceptable
for them to set their allowance against expenditure qualifying
for a lower rate of allowances (such as integral features) – see
Enhanced Capital Allowances (ECAs)
In addition to the AIA, a 100% first year allowance is also
available on new energy saving or environmentally friendly
equipment. Where companies (only) have losses arising from
ECAs, they may choose how much they wish to carry forward
and how much they wish to surrender for a cash payment (tax
credit is payable at 19% but subject to limits).
A separate ECA scheme is available for new electric and low
carbon dioxide (CO
2
) emission (up to 75g/km) cars, new zero
emissions goods vehicles (up to 31 March 2018 (corporates) or
5 April 2018 (others)). They still qualify for the 100% first year
allowance, but do not qualify for the payable ECA regime.
Writing Down Allowance (WDA)
Any expenditure not covered by the AIA (or ECAs) enters either
the main rate pool or the special rate pool, attracting WDA at
the appropriate rate – 18% and 8% respectively. The special rate
8% pool applies to higher emission cars, long-life assets and
integral features of buildings, specifically:
• electrical systems (including lighting systems)
• cold water systems
• space or water heating systems, powered systems of
ventilation, air cooling or purification and any floor or ceiling
comprised in such systems
• lifts, escalators and moving walkways
• external solar shading.
For most other plant and equipment, including some cars (see
below), the main rate applies.
A WDA of up to £1,000 may be claimed by businesses, where
the unrelieved expenditure in the main pool or the special rate
pool is £1,000 or less.
Enterprise Zones
The Enterprise Zones in assisted areas qualify for enhanced
capital allowances. In these areas, 100% First Year Allowances
will be available for expenditure incurred by trading companies
on qualifying plant or machinery.
Cars
Currently for cars purchased with CO
2
emissions exceeding
75g/km, the main rate of 18% applies. However, cars with
CO
2
emissions above 130g/km will be restricted to the special
rate of 8%. For non-corporates, cars with a non-business use
element continue to be dealt with in single asset pools, so the
correct private use adjustments can be made but the rate of
WDA will be determined by the car’s CO
2
emissions. Remember
cars do not qualify for the AIA.
Buildings
When a building is purchased for business use, capital
allowances can be claimed on plant elements contained therein,
eg. air conditioning, subject to certain conditions. A maximum
100% initial business premises renovation allowance is available
for converting or renovating unused business premises within
designated assisted areas, until 31 March 2017 for corporation
tax and 5 April 2017 for income tax. Please contact us for
further details. WDA of 25% (on a straight line basis) applies to
expenditure on which an initial allowance is not claimed.
Research and Development (R&D)
investment
Tax relief is available on R&D revenue expenditure at varying
rates. The current rates of relief are as follows:
• for small and medium-sized companies paying corporation
tax at 20%, the effective rate of tax relief is 46% (that is a
tax deduction of 230% on the expenditure). For small and
medium-sized companies not yet in profit, the relief can
be converted into a tax credit payment effectively worth
33.35% of the expenditure
• for larger companies, the effective rate of relief is 26% (that
is tax relief on 130% of the expenditure)
• an alternative 11% ‘Above the Line’ (ATL) credit exists for
large company R&D expenditure. The credit is fully payable,
net of tax, to companies with no corporation tax liability. The
ATL credit scheme was optional until it became mandatory
on 1 April 2016
• SMEs barred from claiming SME R&D tax credit by virtue
of receiving some other form of state aid (usually a grant)