On 1 April 2008, the capital allowances regime is changing. Although final legislation has not yet been issued, it is unlikely that there will be any significant changes to the current proposals.
Overall, the new regime represents a reduction in the rate of relief on capital expenditure and a complete phasing out of industrial buildings allowances over four years. There are a few winners, such as the ability of loss-making companies to obtain repayable tax credits, but only for qualifying expenditure on environmentally beneficial or energy efficient plant and machinery. Some integral ‘features’ of a building will now specifically attract relief at e.g. cold water systems.
However, overall there are many more losers – the Government’s rationale being that the changes are compensated by the reduction in the mainstream rate of corporation tax on 1 April from 30% to 28%. However, this may be cold comfort to small companies, suffering a rate rise to 21%, especially as they will lose their 50% first year allowances, only to receive a limited replacement in the form of the new annual investment allowance (‘AIA’) providing 100% relief on £50,000 worth of qualifying expenditure.
If you are planning any capital expenditure in the next few months, it may be advantageous for you to either accelerate or defer that expenditure to before or after 1 April 2008. If you would like to discuss how to optimise your tax position with regard to capital allowances please contact us to arrange for an early meeting to review your position so that any necessary action can be taken before 31 March 2008.
