Business Tax

Capital Allowances: Rate and Annual Investment Allowance Changes

For chargeable periods ending on or after 1 April 2012 for corporation tax and 6 April 2012 for income tax, the rate of writing-down allowances for new and unrelieved expenditure on plant and machinery will be reduced to 18% in the main rate pool and 8% in the special rate pool. In addition, the maximum amount of annual investment allowance will be reduced to £25,000 from April 2012.

Hybrid rates will apply to businesses whose chargeable period spans the change date for the writing-down allowance. These will be calculated based on the proportion of the chargeable period falling before and after the change date.

Oil and gas ring-fence activities will retain their existing capital allowances treatment.

Capital Allowances Rules for Qualifying Carers

If a foster carer’s income is over a certain limit, the foster carer may choose to pay tax on:

  • care income above that limit; or
  • actual profits computed using the normal tax rules for businesses (including capital allowances).

Similar rules are being introduced for Shared Lives carers. The choice between the 2 alternatives above is made on an annual basis, so carers may be entitled to capital allowances for 1 year but not for the next and vice versa. There are already special rules in place to facilitate the switch into and out of a capital allowances regime.

Legislation is to be included in a Finance Bill introduced as soon as possible after the summer recess to correct technical anomalies in these special rules to ensure that they operate as intended. For example, when a carer re-enters the capital allowances regime, the carer will be treated as having acquired assets he already owns for the smaller of:

  • the market value of the asset; or
  • the unrelieved expenditure that was in the capital allowances pool at the end of the last chargeable period for which the carer was entitled to claim capital allowances.

The changes will apply to chargeable periods ending on or after the date that the legislation receives Royal Assent.

Zero-Emission Goods Vehicles: 100% First-Year Allowances

Expenditure incurred on new and unused zero-emission goods vehicles on or after 1 April 2010 and before 1 April 2015 for corporation tax and on or after 6 April 2010 and before 6 April 2015 for income tax will qualify for 100% first-year allowances (FYA). A zero-emission goods vehicle is one that cannot under any circumstances produce CO2 emissions when driven.

The general exclusions for FYAs under CAA 2001, s 46 will apply. In order to comply with State aid rules, restrictions apply, and certain businesses will not be able to claim the FYA. In addition, the amount of expenditure qualifying for the new FYA is limited to 85m euros per undertaking (for example a group of companies) over the 5-year period.

Film Tax Relief

For film production companies making films whose production spans 2 or more accounting periods and which have some overseas expenditure the loss that is currently surrendered for tax credit is the lesser of the available qualifying expenditure (cumulative qualifying expenditure to date, less any previously surrendered amount), and the loss incurred in that period. However, where there is an increased UK spend in the second or later periods there is an unintended effect and this is to restrict the amount of tax credit claimable.

This anomaly is now to be corrected by the way the amount that can be surrendered for tax credit is calculated. The calculation will become the lesser of:

  • the available qualifying expenditure; and
  • the loss for the period, plus any loss brought forward which has not been surrendered.

This measure has effect for accounting periods ending on or after 9 December 2009 and is to be treated as always having had effect for those periods.

Bank Levy

The Government will introduce a levy based on banks’ balance sheets from 1 January 2011. This is intended ‘to encourage banks to move to less risky funding profiles’. The final details of the levy will be published later this year, following consultation. It is proposed that it will be set at a rate of 0.07%, with a lower initial rate of 0.04% in 2011.

Furnished Holiday Lettings

The Government has announced that the reliefs for furnished holiday lettings will not now be withdrawn from April 2010 as had previously been proposed. The existing arrangements under which the rules are extended to lettings situated in the European Economic Area will continue to apply for 2010/11.

A public consultation will be carried out about changes to the tax treatment from April 2011. The consultation will specifically consider proposals to increase the number of days for which properties must be let and to change the way in which relief for losses is given. Draft legislation will be published in autumn 2010 with a view to inclusion in the 2011 Finance Bill.