Capital Allowances: Plant and Machinery
First-year Allowances
The temporary 50% rate of first-year capital allowances for small businesses investing in plant and machinery is extended for a further 12 months so as to have effect in relation to expenditure up to and including 31 March 2008 for corporation tax purposes and 5 April 2008 for income tax purposes.

The Government will consult on a proposal to replace first-year allowances for small and medium-sized businesses from 2008/09 with an annual investment allowance of £50,000.

Writing-down Allowances
From 2008/09 the rate of writing-down allowances for plant and machinery in the general pool will be reduced from 25% to 20%, and the rate of writing-down allowances for long life assets will be increased from 6% to 10%.

The Government will consult on proposed changes, effective from 2008/09, to set the rate of writing-down allowances on certain fixtures at 10% and to introduce a payable tax credit for losses resulting from capital expenditure on ‘green technologies’.

None of the proposed changes to capital allowances will apply to North Sea oil and gas ring fence activities.

Industrial Buildings Allowances and Agricultural Buildings Allowances
As part of the reform of capital allowances announced in the Budget, industrial buildings allowances and agricultural buildings allowances will be phased out over a four-year period.

In the first phase, balancing adjustments and the recalculation of writing-down allowances are withdrawn in respect of balancing events occurring on or after 21 March 2007, unless:

• in pursuance of a relevant pre-commencement contract; or
• in respect of qualifying enterprise zone expenditure. A contract is a ‘relevant pre-commencement contract’ if:
• it is in writing and made before 21 March 2007;
• it is unconditional, or its conditions have been satisfied before that date;
• no terms remain to be agreed on or after that date; and
• the contract is not varied in a significant way on or after that date.

The new holder of the relevant interest will then claim writing-down allowances based on the previous owner’s residue of qualifying expenditure, broadly the cost less the allowances claimed.

Capital Allowances: Business Premises Renovation Allowance
A person or a company who owns or leases property that:

• has been vacant for a year or more; and
• is in a designated disadvantaged area of the UK,

may claim 100% tax relief on their capital spending on the conversion or renovation of the property in order to bring it back into business use.

Disadvantaged areas are defined as Northern Ireland and the areas specified as development areas by the Assisted Areas Order 2007. Premises refurbished by, or used by, business engaged in certain designated trades are excluded from the scheme.

The legislation was introduced by FA 2005 and will have effect for qualifying expenditure incurred on and after 11 April 2007.

Capital Allowances for Cars
In response to business representations, a consultation update document has been published giving further detail on the options for simplifying the rules for capital allowances for cars. The Government proposes replacing the expensive car rules with a simpler system of writing-down allowances based on cars’ CO2 emissions.

Enhanced Capital Allowances for Biofuels
The Government will re-apply for state aid clearance for an enhanced capital allowance scheme to support the most carbon-efficient biofuels plant. Subject to that, a 100% first-year allowance will be introduced for qualifying biofuels plant. A payable enhanced capital allowance for companies not in taxable profit will also be introduced.

Tax Avoidance using Employee Benefit Trusts
Anti-avoidance provisions in FA 2003, Sch 24 and ITTOIA 2005, ss 38–44 prevent employers from making a deduction against their taxable profits for employee benefit contributions unless they are paid to employees within 9 months of the end of the relevant accounting period in a form on which income tax and NICs are due. Schemes have been developed which attempt to side-step these rules by an employer declaring a trust over assets which it already controls, such as funds held in a bank account, and subsequently making a tax deduction to the value of that declaration.

For any action undertaken after 20 March 2007, legislation will put beyond doubt that such self-declared contributions to employee benefit trusts are within the anti-avoidance provisions.

Landlords’ Energy Saving Allowance
The following changes to the allowance will be introduced in the Finance Bill:

• the list of items which qualify for relief will be extended to include floor insulation;
• the allowance of £1,500 will be available for each property rather than for each building;
• the allowance will be available until 2015; and
• corporate landlords who let residential property will be entitled to the allowance.

The changes will generally be effective for expenditure incurred on or after 6 April 2007, but the allowance for corporate landlords will not be available until after state aid approval is granted.