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You may also wish to consider the voluntary cash basis for
calculating taxable income for small businesses, which allows
eligible self‑employed individuals and partnerships to calculate
their profits on the basis of the cash that passes through their
business. Businesses are eligible if they have annual receipts of
up to £82,000 and they will be able to continue to use the cash
basis until receipts reach £164,000. 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.
If you are an unincorporated business, you are now able to
choose to deduct certain expenses on a flat rate basis should
you wish to do so – again, this is a matter for discussion as the
flat rates are not generous.
Capitalising on 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 was increased to
£500,000 from 1 April 2014 for companies or 6 April 2014 for
unincorporated businesses, until 31 December 2015. It was
due to return to £25,000 after this date but will now be set at
£200,000 from 1 January 2016.
Currently this means up to the first £500,000 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
claiming. 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 long life assets or integral features) – see below.
Enhanced Capital Allowances (ECA)
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 a special rate pool, attracting WDA at
the appropriate rate – 18% and 8% respectively. The special
rate 8% pool applies to 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. The qualifying expenditure
must be incurred between 1 April 2012 and 31 March 2020.
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.
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. 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. 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). From
1 April 2015 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