Emergency Budget 2010 – Capital Allowances Overview
Property and Construction Overview
Billed as a ‘tough but fair’ Budget, Chancellor George Osborne has announced his plans to tackle the UK’s record deficit while sustaining the economy.
Mr Osborne set the scene for his first Budget by stating that “the country has overspent, it has not been undertaxed…”. In addition to sweeping changes to Government spending, he also announced some landmark changes to the taxation system.
- 20% main VAT rate to be introduced on 4 January 2011, with continued exemptions for essential goods.
- Rate of Capital Gains Tax to increase to 28 per cent for higher rate and top rate income taxpayers (basic rate taxpayers rate to remain at 18 per cent)
- Companies were given the positive news that the main rate of Corporation Tax would be reduced by 1 per cent every year for four years to 24 per cent, starting in April 2011. It currently stands at 28%. For small companies the rate is to go down to 20% (from 21%).
Media speculation prior to the Budget had suggested that the reduction in Corporation Tax would be paid for by the removal of tax reliefs such as capital allowances, although this has proved unfounded. There will, however, be a reduction in the speed at which the tax savings associated with some capital allowances are realised, albeit these revised rates will not take effect until April 2012:
- Plant and Machinery : annual allowance reduced from 20% to 18%
- Integral Features and Long Life Assets : annual allowance reduced from 10% to 8%
- Annual Investment Allowance : annual allowance reduced from £100,000 to £25,000
On another positive note, the 100% Enhanced Capital Allowances for certain energy and water efficient assets still remain with further qualifying categories being added this year.
As stated above the overall structure of relief available from capital allowances has not been altered. The rate at which this benefit is realised has been reduced slightly, and will not be effective until April 2012. For any current or historic expenditure on qualifying plant and machinery there is an obvious advantage in making any claims in the earliest return available.
From April 2012 it will be more important than ever to seek specialist advice to maximize the value and cashflow benefit of the valuable tax relief available via capital allowances.
For certain industries / sectors such as dentists and care service providers who are unable to register for VAT there is a short window, prior to 4 January 2011, to make VAT inclusive purchases for goods and services at the current rate.
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