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Annual Investment Allowance (AIA)
The first £50,000 of the year’s investment in plant and machinery, except for cars, is allowed at 100%. This applies to any size of business, but there are provisions to prevent multiple claiming. Businesses are able to allocate their AIA in any way they wish; so it is quite acceptable for them to set their allowance against expenditure qualifying for a lower rate of allowances (such as long-life assets or integral features).

Writing Down Allowance (WDA)
Any additional expenditure over the AIA level enters either the 10% pool or the 20% pool, attracting WDA at the appropriate rate. The special rate 10% pool applies to long life assets, including the addition of thermal insulation to existing commercial buildings and integral features of buildings, specifically:

• Electrical systems (including lighting systems)
• Cold water systems
• Space or water heating systems, powered systems of ventilation, air cooling or purification and any floor or ceiling comprised in such systems
• Lifts, escalators and moving walkways
• External solar shading
• Active facades (climate-responsive features)

The 20% pool applies to most other plant and equipment, including cars (see below). Businesses may claim a WDA of up to £1,000where the unrelieved expenditure in the main pool or the special rate pool is £1,000 or less.

Enhanced Capital Allowance (ECA)
In addition to AIA, 100%first year allowance is available on energy saving or environmentally beneficial equipment. Where companies (only) have losses arising from ECA’s, they may choose how much they wish to carry forward and how much they wish to surrender for a cash payment (tax credit payable at 19%).

There is a separate ECA scheme for electric and low CO2 emission (up to 110 g/km) cars and natural gas/hydrogen refuelling equipment. They still qualify for 100% first year allowance. However, these losses do not qualify for the cash payment ECA regime.

Buildings
There is a phased withdrawal of industrial and agricultural buildings allowances, with a WDA (on building cost) of 3% for 2008-09, which is subject to transitional arrangements. A maximum 100% initial allowance is available for conversion of parts of business premises into flats and business premises. WDA of 20% applies to expenditure on which the initial allowance is not claimed.

Cars
As mentioned above, a rate of 20% applies to cars with CO2 emissions exceeding 110g/km. However, cars costing in excess of £12,000 go into a separate pool with the WDA capped at £3,000 per annum.

From April 2009, the requirement for separate pooling of cars with cost exceeding £12,000 will be withdrawn. Instead, cars with CO2 emissions above 160 g/km will be restricted to 10% WDA.

The Morley and Scott team of tax specialists are always on hand to offer guidance and effective tax saving strategies to ensure the correct level of taxes are paid.

www.morleyandscott.co.uk