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Main features
Capital expenditure
and depreciation
cannot be deducted in calculating taxable profits. However, some capital expenditure
can be deducted as initial or writing down allowances (WDAs).
Costs of some assets are pooled and a writing down
allowance is calculated each year on the balance. When a pooled asset is
sold, the proceeds are normally deducted from the pool balance. If the
proceeds are greater than the pool balance, the excess is treated as a balancing charge and is added to the
profits for the relevant year.
Most cars costing over £12,000 are
dealt with individually.
Short-life plant and machinery may
benefit from accelerated capital allowances if an election is made. Balancing allowances are available on
items that are not pooled and when a business ends. If the sale proceeds
are less than the written down value, the difference will reduce profits
for the relevant year.
Main allowances
The straight line basis means that a constant
percentage of the initial investment is allowable each year. The reducing balance basis means that a percentage is
allowed of the written down value after deducting the allowances for the
previous periods.
Plant and machinery, patent rights and know-how: WDA (reducing balance) normally 25% pa; 6% pa for certain
assets with a life of at least 25 years, if annual expenditure on such
assets exceeds £100,000. First-year allowance for plant and machinery of
50% for small businesses for one year from April 2006; 40% for medium size
businesses; 100% allowance for qualifying energy-saving or water-efficient
equipment (all businesses).
Cars: WDA (reducing balance) 25%
pa with maximum per car of £3,000pa; first-year allowance 100% for new cars
emitting up to 120g/km CO2.
Industrial buildings, hotels, agricultural buildings,
dredging: WDA (straight line) 4% pa.
Enterprise zone buildings, research and development and
certain expenditure on residential flats over commercial property: Initial allowance 100%.
The Dyer Partnership, 17 Westminster Court,
Hipley Street,
Old Woking, Surrey GU22 9LG
Copyright © 2002 - 2006 The Dyer Partnership
Limited
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