The Chancellor confirmed the changes to the capital allowance regime, announced in 2007, will take effect from April 2008. Companies with unrelieved losses attributable to Enhanced Capital Allowances, on energy saving or environmentally beneficial equipment may choose to surrender such losses for a cash payment.
Annual Investment Allowance (AIA)
Tax relief on the first £50,000 of investment in plant and machinery, except for cars, will be at 100%. This will apply to any size of business, but there will be provisions to prevent multiple claiming. Businesses will be able to allocate their AIA in any way they wish; so it will be quite acceptable for them to allocate their allowance against expenditure otherwise qualifying for a low rate of allowance.
Writing Down Allowance (WDA)
Any additional expenditure over the AIA level will enter either the 10% pool or the 20% pool, attracting WDA at the appropriate rate. The 10% pool will contain long-life assets, thermal insulation added to existing commercial buildings, and 'integral features' of buildings (including replacement expenditure). The 20% pool will apply to most other plant and equipment, including cars costing £12,000 or less. Cars costing more than £12,000 will continue to qualify for a 25% WDA subject to a maximum of £3,000.
Research and Development (R&D) Tax Credits
The enhanced deduction available to small and medium enterprises (SMEs) in respect of qualifying R&D expenditure is to Increase from 150% to 175%. For large companies the enhanced deduction is to increase from 125% to 130%. These changes will take effect from a date to be appointed once EC state aid approval has been received. As from the same date, the SME tax; relief will no longer be available to those companies •i\noii- most receni accounts were not produced on a going concern basis. In addition, the SME relief is to be capped J at €7.5 million per R&D project.
Associated Companies
The tax bands are reduced where a company has one or more associated companies. As from 1 April 2008, a company will no longer be associated with companies controlled by the business partners of the person controlling that company. The exception to this is where at any time the shareholder or director of the company and the business partner have made arrangements to secure a tax advantage for the company.
Enterprise Investment Scheme (EIS)
From 6 April 2008, subject to EC state aid approval, the limit on which an investor can claim EIS income tax relief will be increased from £400,000 to £500,000.
Enterprise Management Incentives (EMI)
Currently, employees cannot hold qualifying EMI options (taking into account Company Share Option Plan options also granted to them) with a total market value at the date of grant of more than £100,000. For EMI options granted on or after 6 April 2008, this limit will be increased to £120,000. Options granted after the date of Royal Assent will not be qualifying EMI options if the company has 250 or more employees and/or it is involved in shipbuilding or coal and steel production.
Anti-avoidance
A number of measures will be introduced to tackle anti-avoidance. These will affect:
• Individuals carrying on a trade in a non active capacity and sideways loss relief
• Plant or machinery lease schemes
• 'Disguised interest' schemes
• Controlled foreign companies
• The transfer of intangible assets between related parties where one party is subject to insolvency proceedings
• Capital allowance buying and acceleration.
Corporation Tax Rates
|
Taxable profits
|
Financial year to
31 March 2008
|
Financial year to
31 March 2009
|
|
First £300,000
|
21%
|
20%
|
|
Next £1,200,000
|
29.75%
|
32.5%
|
|
Over £1,500,000
|
28%
|
30%
|
The small companies' rate of corporation tax will increase from 21% to 22% in 2009/10
