Business Incentives
Capital allowances
"But the Budget also created losers in the corporate sector, as the cut in the tax rate was offset by a reduction in capital allowances."
Vanessa Holder, Financial Times |
This Budget sees some changes to the capital allowance regime. Perhaps the most radical part of the changes is the phasing out of Industrial Buildings Allowances (IBAs) and Agricultural Buildings Allowances (ABAs) over a four year period in preparation for a 'final abolition'. Balancing adjustments or recalculation of writing down allowances on a balancing event are withdrawn with effect from Budget Day. There are exceptions for contracts entered into before 21 March 2007 or where the adjustments arise as a result of qualifying enterprise zone expenditure.
The Chancellor also announced an extension of the temporary 50% first year allowance on plant and machinery expenditure incurred by small businesses announced in last year's Budget. The extension is for a further year commencing on 1 April 2007 for corporate taxpayers and commencing 6 April 2007 for income taxpayers.
Future changes to the capital allowance regime with effect from 2008/09 were also announced. These are as follows:
- the rate of writing down allowances for plant and machinery in the general pool will be reduced from 25% to 20% p.a.
- an annual investment allowance for the first £50,000 of expenditure on plant and machinery will be introduced
- writing down allowances on certain fixtures will be set at 10% p.a.
- the rate of writing down allowances on long-life asset expenditure will increase from 6% to 10%
- a payable tax credit will be available for losses arising on capital expenditure on 'green technologies'.
Further measures include a Treasury Order laid on 21 March 2007 which brings into effect a scheme enabling individuals or companies to claim 100% tax relief for expenditure which enables qualifying business premises to be brought back into use. The scheme was brought in by the Finance Act 2005 but the appointed day has now been set as 11 April 2007. In order to qualify the expenditure must be in respect of the conversion or renovation of a business premises which has been vacant for over a year and is situated in a designated disadvantaged area. Certain industries are excluded however, by a change to the original legislation now proposed.
Richard Lambert, director-general of the Confederation of British Industry, called the extension of the R&D tax credit "an important incentive for companies to invest in innovation and locate in the UK".
He said that raising the rate for small companies would "significantly increase the value of their credit, reducing their R&D costs by 15 per cent," he said.
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Research and development (R&D) tax relief
The Chancellor has announced an increase in the rates applicable to enhance qualifying R&D expenditure. For small and medium sized companies (SMEs) the rate will be 175% of qualifying expenditure (currently 150%) and for large companies it will be increased to 130% (currently 125%). These changes will be brought in the Finance Act 2008. This year's Finance Act will see a clause to extend the SME R&D tax relief to companies with fewer than 500 employees and which have an annual turnover not exceeding €100 million and/or who have an annual balance sheet total not exceeding €86 million.
