at a glanceadministration of taxpersonal taxationemployment taxationbusiness taxcorporation taxcapital gains taxsavings and investmentinheritance taxcharitiestrusts

BUSINESS TAX

Carry-back of Business Losses

The period to which businesses can carry back their trading losses is to be extended temporarily. The extended carry-back will apply to losses sustained by unincorporated businesses in 2008/09 and 2009/10 and by companies in accounting periods ending between 24 November 2008 and 23 November 2010. For unincorporated businesses, it applies equally to losses sustained in a profession or vocation.

The new proposals will enable losses to be carried back 3 years instead of 1. However, the amount that can be carried back more than 1 year is limited in total to £50,000, and it can only be set against taxable profits from the same trade. A separate £50,000 cap applies to each year’s loss. The set-off must be made against later years’ profits in priority to earlier years’ profits.

Plant and Machinery: Temporary First-Year Allowance

A new, temporary 40% first-year allowance (FYA) will apply to expenditure on plant and machinery that would otherwise be allocated to the main pool because it is expenditure in excess of the £50,000 cap for the annual investment allowance. Expenditure on certain assets, including long-life assets, integral features, cars and assets for leasing will be excluded.

The 40% FYA will be available, for expenditure incurred in the period of 12 months from 1 April 2009 for corporation tax and 6 April 2009 for income tax, to any company, partnership or individual carrying on a ‘qualifying activity’.

Tax Relief for Business Expenditure on Cars

A car costing over £12,000 has until now been required to be placed in a single asset pool for capital allowances purposes. Writing-down allowances (WDAs) are available at 20% but cannot exceed £3,000 per annum for each such car. These were known as the ‘expensive car’ rules. The expensive car rules are abolished for expenditure incurred on or after 1 April 2009 for companies and 6 April 2009 for non-corporate businesses. Instead, all new qualifying expenditure on cars used exclusively for the business will go either into the main 20% pool or into the special rate 10% pool. This will be determined by the level of the car’s carbon dioxide emissions. Cars with emissions over 160g/km will go into the special rate pool. Cars with an element of non-business use will continue not to be pooled but will attract only the 10% special rate of WDAs if their emissions exceed 160g/km. These rules will not apply to motor cycles, which will instead become eligible for the annual investment allowance, first-year allowances and short-life asset treatment. Expenditure incurred before 1 April/6 April 2009 on cars costing over £12,000 will continue to be subject to the previous rules for a transitional period of about 5 years. At the end of the transitional period, any remaining written-down value will be transferred to the main pool.

Where a car worth more than £12,000 is leased rather than purchased, there were rules restricting the amount of lease rentals deductible in computing business profits. These are also abolished, in this case where the lease period begins on or after 1 April/6 April 2009. Instead, only 85% of the expenditure on leasing a car with carbon dioxide emissions above 160g/km will be deductible. Where there is a chain of leases, this restriction will apply only to lease rental payments made by one lessee in the chain. There will be no restriction where the car is made available to the business for a period of no more than 45 consecutive days or if the business sub-hires the car to a customer for a period of more than 45 consecutive days (except where the business makes cars available to its employees or to the employees of a connected person). Lease periods or sub-hire periods may be aggregated in determining whether the period exceeds 45 days. There will be no restriction on the deduction of expenditure on the leasing of a car with lower emissions or of a motor cycle.