Inland Revenue 10
17 March 1998
______________________________________________________________
EXTENSION OF ENHANCED FIRST-YEAR CAPITAL ALLOWANCES FOR SMALL
AND MEDIUM-SIZED BUSINESSES
An extension of enhanced allowances to small and medium-
sized businesses for investment in plant and machinery, was
announced by the Chancellor today. For expenditure in the
year following 1 July 1998 the capital allowance for the
first year will be set at 40 per cent of the cost.
More than 99 per cent of businesses will qualify for the
enhanced allowances, which will improve their cash flow and
help them to grow and invest.
It is estimated that small and medium-sized businesses will
pay 140 million pounds less tax in the year 1999/2000 and 160
million pounds less tax in the year 2000/01.
Over the coming year, the Government will continue to
examine how best to create an environment which encourages
investment by small and medium sized businesses. This will
include reviewing the case for continuing with enhanced
capital allowances.
DETAILS
1. Prior to the last Budget, capital allowances were given
on machinery and plant at 25 per cent a year on the reducing
balance basis.
2. Under the Budget proposals, which apply to expenditure
in the period from 2 July 1998 to 1 July 1999, there will be
a first year allowance at 40 per cent for investment by
small and medium-sized businesses on machinery and plant.
After the first year, writing down allowances will be due at
25 per cent a year on the reducing balance as before.
Businesses that qualify
3. As with the existing first year allowance, the new
first year allowance will be available to businesses which
are small or medium-sized using the Companies Act
definitions. These are broadly that the business must
satisfy two of the following conditions for the current or
previous year:
- turnover not more than 11.2m pounds,
- assets not more than 5.6m pounds, and
- not more than 250 employees.
4. In the case of companies, the company must be small or
medium-sized for the year in which the expenditure is
incurred to qualify for the new first year allowances. If
the company is a member of a group, the group must be small
or medium-sized.
5. The new first year allowances will also be available to
businesses carried on by individuals and partnerships made
up of individuals provided the business would qualify if it
were carried on by a company.
Exclusions
6. The new first year allowances will not apply to
expenditure on machinery and plant for leasing or letting on
hire, cars, long-life assets, sea-going ships and railway
assets.
NOTES FOR EDITORS
1. Capital allowances allow the cost of capital assets to be
written off against the taxable profits. They take the place
of depreciation charged in the commercial accounts, which is
not allowable for tax.
2. First year allowances on machinery and plant were
phased out in the 1984 business tax reforms. They were
reintroduced temporarily for expenditure incurred during the
12 months ended 31 October 1993 and for expenditure during
the 12 months ended 1 July 1998.
3. It is estimated that small and medium-sized businesses
will pay 140 million pounds less tax in the year 1999/2000 and
160 million pounds less tax in the year 2000/2001 as a result
of this change.