Capital allowances: AIA trimmed back

The capital allowances changes announced in this Budget were largely as expected. As announced in the June Budget 2010, from April 2012 writing down allowances will be reduced to 18% and the Annual Investment Allowance will be reduced to £25,000.

The disposal time limit on the capital allowances short life assets election will be extended from April 2011 from four to eight years, meaning that accelerated tax relief can be obtained where assets designated as “short life” are sold or scrapped within eight years.

The Business Premises Renovation Allowance will be extended for a further five years from 2012.

The list of designated energy saving technologies qualifying for enhanced 100% capital allowances will be updated during summer 2011, subject to agreement with the European Commission, to include one new technology: certain energy efficient hand dryers. The criteria for automatic monitoring and targeting equipment will also be revised.

In addition to the announcement of the creation of new Enterprise Zones, the Government will consider, in a limited number of cases, the scope for introducing enhanced capital allowances to support Enterprise Zones in assisted areas, where there is a strong focus on high value manufacturing.

R&D Tax Credits increased for SMEs
Following responses to the consultation document published on the effectiveness of the Research and Development (R&D) tax credits schemes in November 2010, the SME scheme rate of relief will increase from 175% to 200% from April 2011 and 225 per cent from April 2012, subject to EU State aid approval.

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John Stokdyk's picture

CIOT unimpressed by short-life asset extension proposal

John Stokdyk | | Permalink

The Chancellor’s plan to double the period that can be covered by the short life assets rules is not the right move from a simplification point of view, according to the Chartered Institute of Taxation (CIOT).

CIOT Tax Policy Director John Whiting commented in a press release: “The problem with the SLA rules is that they require careful record keeping. Extending the period covered by this concession is attractive on the surface but only works for businesses that keep additional, more detailed records – for up to eight years. This sounds more like complexity in a budget notable for its moves on simplification. It would have been far better to improve the annual investment allowance limit which is due to be cut significantly next year.

“In many cases the benefit of this measure will be of limited value, for example an asset which has been written down at 18% pa for eight years will only give rise to an additional allowance of around 20% of the original cost.”