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Business tax consultation launched

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30th Jul 2007
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Consultation is under way on changes to capital allowances - part of the package of reforms to business tax announced in this years' budget.

The consultation document, launched by Financial Secretary to the Treasury, Jane Kennedy MP, last week, sets out the package of reforms and seeks feedback from business on three new elements of the capital allowances regime:

  • the annual investment allowance;
  • the definition of 'integral fixtures' to be assigned to the 10 per cent pool; and
  • payable enhanced capital allowances for environmentally beneficial investment.

The budget announced a package of reforms to the business tax regime designed to reform corporation tax rates, reduce the distortive impact of capital allowances, and improve environmental incentives.

These included:

  • a reduction in the main rate of CT from 30% to 28%.
  • a phased increase in the small companies' rate, rising to 22% from April 2009.
  • a reduction in the main rate of capital allowances on the general pool of plant and machinery from 25% to 20%
  • an increase in the rate of capital allowances on the pool of long-life assets.
  • separate classification of fixtures that are integral to a building, and their inclusion in the 10% capital allowances pool.
  • phased withdrawal of the industrial buildings and agricultural buildings allowances.
  • introduction of new rules enabling companies to surrender losses derived from enhanced capital allowances (for expenditure on certain environmentally beneficial types of plant and machinery) in return for a cash payment.
  • increases to the large company R&D tax credit and enhanced deduction element of the SME and mid-sized R&D tax credit, subject to State aid clearance.

The consultation runs until 19 October. Further technical consultation on these changes, including draft legislation, will follow later in the year, and legislation will be included in Finance Bill 2008.

The consultation document can be found on the Treasury website.

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