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Budget 2008

Business Tax

Capital allowances
There will be major changes to capital allowances with effect from 6 April 2008 (income tax businesses) or 1 April 2008 (companies). In summary:

• All businesses will receive an "annual investment allowance" (AIA) of £50,000 a year. Purchases of plant and machinery of up to this figure will enjoy a 100% tax deduction. This will provide a proportionately greater benefit for smaller businesses.
  
  
• The writing down allowance (WDA) on plant and machinery will fall from 25% to 20%.
  
  
• In accounting periods starting on or after 1 April 2008, small pools of unrelieved expenditure of up to £1,000 can be written off immediately.
  
  
• The WDA on long-life assets will rise from 6% to 10%.
  
  
• A new class of capital allowance asset, "features integral to a building", will qualify for 10% WDA.
  
  
• The allowances for industrial buildings, agricultural buildings and hotels will be phased out: the WDA will fall from 4% to 3% on 1 April 2008, then to 2% on 1 April 2009, 1% on 1 April 2010 and nil from 1 April 2011. Enterprise zone allowances will also be phased out by 2011.
  
  
• Where an accounting period straddles the date on which the rules change, the capital allowances computation will be complex, combining the different rates and rules.
  

There will also be changes to capital allowances on cars in 2009, reducing the WDA on cars with a CO2 rating of 160g/km or more to 10%.

Tax Tip

These changes produce planning opportunities and pitfalls - review capital expenditure plans.

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