capital allowances


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Capital Allowances

A reduction in a company's corporate tax in order to encourage it to make capital investments. In general, when a company buys capital assets or makes some other long term investment, its corporate taxes are reduced by some amount over and above what the depreciation on the asset would have been. This amount is called the capital allowance.

capital allowances

standard allowances, for TAXATION purposes, against expenditure on FIXED ASSETS by a firm in lieu of DEPRECIATION. In the UK currently (as at 2004/05) a 25% ‘writing-down allowance’ against tax is available for firms which invest in new plant and equipment. Additionally in the case of small and medium-sized firms a 40% ‘first year allowance’ is available for INVESTMENT in new plant and equipment and a 100% tax write-off (for the three year period 2000/03) for investment in computers and e-commerce. A business may choose its own rates of depreciation for fixed assets which may differ from the statutory capital allowances. Capital allowances may also be varied by the government to encourage or discourage capital INVESTMENT. See DEPRECIATION, CORPORATION TAX.

capital allowances

‘write-offs’ against CORPORATION TAX when a FIRM invests in new plant and equipment. In the UK currently (as at 2004/05) a 25% ‘writing-down allowance’ against tax is available for firms that invest in new plant and equipment. Additionally, in the case of small and medium-sized firms, a 40% ‘first-year allowance’ is available for investment in new plant and equipment and a 100% tax write-off for investment in computers and e-commerce.

Capital allowances are aimed at stimulating investment, thereby increasing the supply-side capabilities of the economy and the rate of ECONOMIC GROWTH. See CAPITAL GOODS, DEPRECIATION 2.

References in periodicals archive ?
For example, under the present capital allowance system a car bought for pounds 25,000 and sold in year five for pounds 5,000 will generate pounds 20,000 capital allowances for the company over a five-year period.
As of April, claims on the position and eligibility for capital allowances relief must be resolved with the property vendor prior to purchase.
But tax chiefs have made it clear that capital allowances will now only be available with regard to rents on the centre.
The government should take action to improve capital allowances for all new machinery, equipment and research and development.
Reforms outlined in the Finance Bill 2012 take effect in April and will dramatically change the qualifying criteria for businesses to make claim to capital allowances on properties that they own or have significantly improved.
BUSINESSES across the UK are missing out on incredible amounts of tax relief in unclaimed Capital Allowances, says Richard Hall, managing director of Capital Allowances Consultants Ltd.
New legislation set out by the government confirms tax rules prevent businesses claiming capital allowances for costs met by other businesses.
Many businesses that own their own property already claim capital allowances, but often do not claim them to the full extent.
Under the Enhanced Capital Allowances regime, businesses of any size are able to claim a 100% tax write-off on their spending on qualifying cars and plant and machinery.
Businesses at theWilton and Hartlepool-based Port Estates sites will benefit from capital allowances that will significantly reduce the capital cost of plant and machinery.
The FLA believes George Osborne can boost investment by simplifying the current system of Enhanced Capital Allowances (ECAs).
He outlined just three schemes which could create more profits and enhance small companies' ability to reinvest in their future - the Enterprise Management Incentive Scheme, the Enterprise Investment Scheme and Enhanced Capital Allowances.

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