What you need to know
These are really for ‘wear and tear’ on ‘machinery and plant’, which includes vehicles, reference library, office furniture, computers, etc.
These allowances can seem a bit confusing until you know your way around them a little better, but they are important.
Capital Allowances: Plant and Machinery Allowance Regime; Special Rate Pool
A new regime was introduced for capital allowances on plant and machinery, on 1 April 2012 (corporation tax) and 6 April 2012 (income tax):
- The main rate of Writing Down Allowances (WDAs) is 18%;
- The rate of WDAs on life-long assets is 8%;
- A new annual investment allowance (AIA) has been introduced for the first £250,000 (for 2013 onwards) of expenditure on most plant and machinery each year, giving a 100% allowance.
- Where more than £250,000 is spent in a chargeable period the excess will qualify for WDAs in the normal manner. This AIA is intended to complement any existing 100% first-year allowance (FYA) schemes.
- Any expenditure that qualifies for 100% allowances under separate schemes has been unaffected by the introduction of the AIA; and
- If the main pool is £1,000 or less, businesses can claim a WDA of any amount up to £1,000.
In addition, a new 8% ‘special rate’ pool is also kept, into which capital expenditure on the following assets will be allocated:
- Any unrelieved expenditure in a pre-FA 2008 long-life asset pool
- Expenditure on the thermal insulation of a building (previously, such expenditure qualified for 25% allowances, but only when incurred on an industrial building)
- Expenditure on certain ‘integral features’ (there is a list of these assets, which includes electrical systems, water and heating systems, lifts and similar fitted items).
As for the main pool, where the unrelieved expenditure in the ‘special rate’ pool is £1,000 or less, businesses can claim a WDA on any amount up to £1,000. This is an intricate area of tax and we advise that you seek advice where necessary.
Allowances are not expenses — if you sell the asset you still need to account for the proceeds by deducting them from relevant pool, so the amount that can be claimed reduces in later years.