HMRC's new ready reckoner for capital allowances

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HMRC have created a "ready reckoner" to help those who have accounting periods which span the date of the change in in the Writing Down Allowance (WDA) for business expenditure on plant and machinery changed from:

  • 1 April 2008 for companies, and

  • 6 April 2008 for the self-employed.

The rates on the change as follows:

  • from 25 to 20 per cent for general plant and machinery

  • from 6 to 10 per cent for long-life plant and machinery

A transitional, hybrid rate has to be used for those business whose chargeable period spans the relevant change date. The ready reckonereckoner will make this calculation for any business affected.

The hybrid rate is arrived at by calculating:

  • the rate for the portion of the chargeable period falling before the change date

  • the rate...

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By SimonP
10th Dec 2008 16:21

Am I being particularly pedantic or is the devil in the small pr
If the hybrid rate is supposed to be for both companies and the self-employed, why does the example (quoted from the HMRC website) specifically refer to COMPANIES only?

Does this imply that the self-employed are to be dealt with in a different way?

It could just be HMRC not actually reading what they write and realising that there could be ambiguity. Or maybe, like Gordon Brown, who keeps referring to HMRC as "The Inland Revenue", they are clueless!

Thanks (0)
10th Dec 2008 17:38

Ray - I know the apportionment is supposed to be on a daily basis I was simply amused by the sole trader/partner comment made on the site that as my basis period was more than 1 year I should increase the allowances pro-rata. This suggests that for any accounting period that includes feb 29th we can claim 366/365ths of a normal year's allowances - so allowances of £30,000 become £30,082(?). It is also interesting that they suggest that is the WDA that is inflated rather than the percentage - £100 becomes £150 for an 18 month period of account. They have, of course, already taken the leap year into account in calculating the allowance.

Simon I suspect they chose a company with 31 December as a year end because despite the daily apportionment to arrive at the overall hybrid allowance is still comes out at a friendly - 3 months at 25% and 9 months at 20% - 21.25%, and this was the example quoted in the original budget hand outs - why think up a new example when you can copy someone elses. Unfortunately the tax faculty have produced a series of examples showing capital allowances where the examples for individuals use a monthly apportionment and so get the allowances wrong. Comparing monthly with daily apportionment, WDAs are slightly increased on daily count, the extra 5 days at the old rate, but the Annual Investment Allowance is reduced - 5 days less after 5 April than 31 March of course.

Thanks (0)
09th Dec 2008 07:55

Hybrid rates

CCH's British Tax Reporter (at para. 238-060) and their Capital Allowances 2008-09 (at para. 190-250) both pick up this point:

"The legislation ... makes it clear that the rate of WDA for periods spanning 1 or 6 April should be calculated on a day-by-day basis. ... . As it happens, the rate calculated using the statutory formula comes out with the same result, for a company with a year ended 31 December 2008, as a monthly apportionment, but this is not always the case."

Both titles then include an example to demonstrate the daily calculation.


Thanks (0)
09th Dec 2008 00:06

OK - if you persist it does sort of work but I thought I'd pose it a split year - 1.8.07 to 31.7.08 - although for a company it seems to give the right result, for an individual it gives the right result but goes on to say that as the basis period is more than a year the allowances should be increased on a pro-rata basis, which if it was (say) 13 months in duration would be right. Does it really mean in this case that we should increase the WDA by 1/366th just because it is a leap year?

Disappointingly it does not provide the 'hybrid' AIA which also has to be calculated on a daily basis by statute.

As the legislation requires daily apportionment why do the various bodies producing examples, from HMRC to CIOT issue examples which use a monthly basis ofd apportionment? Now for a company it is true that 31 December produces a 21.25% hybrid rate, but for an individual it produces a rate of 21.31%.

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05th Dec 2008 14:11

Seems to be working, but
When you first click to go to the link you get a screen saying An Error has occurred, but if you press the continue button, it then takes you into the Ready reckoner. Just tried it, comes up with 21.25% for 1/1/08 to 31/12/08 which seems right to me.

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05th Dec 2008 13:15

Great it dosnt work

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