Budget 2007: Surprise overhaul announced for capital allowances from 2008

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As a parting gesture, Gordon Brown announced a major overhaul of tax allowances for business investment in plant, machinery and buildings.

In his budget speech, the chancellor said he would expand on the scope of first year allowances for environmental equipment. The detailed budget press notice PN 01 explained that from April 2008 first year allowances on specified plant and equipment will be scrapped and replaced by an Annual Investment Allowance on expenditure up to 50,000.

For the next year the temporary first year allowance of 50% for small businesses investing in plant and machinery introduced last year will remain, and so will the 40% rate for medium-size business.

When they are scrapped, the annual investment allowance will be available to all businesses regardless of their size or le...

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By Anonymous
23rd Mar 2007 16:02

Wait for the Finance Bill...
I assume that the devil will be in the wretched details. Seems like it now may be worth selling off your industrial buildings if there are to be no balancing adjustments. Don't forget to make a claim for any unclaimed fixtures before 2008 too!

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By Anonymous
23rd Mar 2007 12:25

Hypothetical question
An IBA is disposed of in two months time (completely falls in to the new rules)

Cost £1million
TWDV £600k

Disposal £800k

Normally, there would be a balancing charge. Will this situation result in the company keeping the CA's previously claimed (via some restriction on proceeds) instead of having them clawed back?

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21st Mar 2007 17:32

IBAs on second-hand buildings
Am I the only one who is puzzled about what happens on second-hand industrial buildings acquired before the Budget? If last week the taxpayer bought a building with a 15-year remaining IBA life, does he get IBAs over the next 15 years, are they phased out over four years, or what?

The Budget Notice BN07 and Chapter 3 of the Budget Report don't spell this point out as far as I can see.

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21st Mar 2007 22:53

Annual Investment Allowance
Won't this initiative encourage small businesses to hold off any purchase of plant and machinery until after April 08 so that they get 100% write down rather than 20% reducing balance ad-infinitum?

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By Anonymous
22nd Mar 2007 08:44

Are they able to?
Would small businesses have the ability to hold off £50,000 of P&M purchases to take the 100%? Maybe larger purchases but they still have the 50% FYA for the next year on all purchases anyway.

IBAs are being phased out with a 1% reduction per year - the transitional plans look as if they will stop any balancing charges/allowances on disposals but do not say how the remaining capital value will be dealt with when IBA's/ABA's are no longer given allowances.

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22nd Mar 2007 16:42

IBAs one-quarter reduction
To answer the original question by Adrian. His taxpayer would in the first instance be able to claim at 6.67% (i.e. the residue of expenditure over 15 years). Once the restriction starts to bite the rate will reduce by one-quarter each year. So in April 2008 it will reduce to 5%, in 2009 it will be 3.34%, in 2010 it will be 1.67% and thereafter nil (after April 2011 there will be no tax relief given for any residue of expenditure that has not already been written off).

Steven Bone
The Capital Allowances Partnership LLP (www.cap-allow.com)
Co-author of 'Tottel's Capital Allowances: Transactions & Planning' and Tolley's Handbook on The Capital Allowances Act 2001

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22nd Mar 2007 16:16

The Revenue have confirmed that this is complete abolition of IBAs over the next four years - and so after April 2011 there will be no more allowances regardless of whether there is any outstanding qualifying years. So we go from 4% to 3% to 2% to 1% to 0% regardless of when the property was constructed/purchased.

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22nd Mar 2007 15:29

just joining in
because i don't know what happens after the transition period, it makes a big difference because i have major purchase of industrial building at moment, which would have been good to have nailed last week obviously!

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23rd Mar 2007 16:51

Gary's question
The answer is yes. Post 21 March 2007 on any disposal there is no balancing charge or allowance and the purchaser steps into the vendor's shoes with regard to claiming the remaining allowances - with the proviso that they will reduce by 1/4 every year after 2007/8.

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26th Mar 2007 15:28

Surprise overhaul?
I thought there had been announcements in the Red Book last year that the CAs system was being looked at for overhaul, and of course there has been comment by the revenue as part of the review of PMV CAs.

But how I wonder will those two interact? PMVs with a CO2 rate below 120gm/km will get a 100% FYA we are told, and if less than 165gm/km will go into the general pool. However it is the expenditure in the general pool which will qualify for the 100% Investment Allowance for expenses up to £50,000 pa s- - does this mean that all cars with a CO2 figure below 165g/km will qualify for a 100% allowance for traders spending less than £50,000pa. Seems too good to be true and you know what they say about things being too good to be true...

Apropos of the Investment Allowance, when we last had one of these (in 1972 I believe) it was a cash incentive and didn't affect the CAs available, but then went in 1974 when FYAs et al were introduced. Any chance of this Investment Allowance being given independently of the CAs system?

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