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 ?
Critics have pointed out that cuts in the main rate of corporation tax have not benefited smaller companies, some of which have been worse off as a result of recent changes to the capital allowances regime.
MoneyBee Tax estimates that, on average, for every 100,000[pounds sterling] spent on premises, capital allowances could be claimed on around 30% of it.
While enhanced capital allowances would be less suitable for the financial services-based enterprise zone at Cardiff's Central Business District, they could prove extremely useful in attracting investment to locations such as the automotive enterprise zone at Ebbw Vale.
The research showed that capital allowances were the most well-known of the initiatives (41%), followed by government investment incentives (36%), R&D relief (30%) and entrepreneurial relief (28%).
Mrs Hart said: Deeside is of great strategic importance to Wales for advanced manufacturing, Enhanced Capital Allowances will cement its competitive position and encourage new investment.
Businesses have called for a time-limited capital allowance scheme for medium-sized companies, allowing them to offset investment in plant, machinery and buildings against corporation tax.
Key priorities include introducing a two-year temporary increase in capital allowances, a pledge to remove the Carbon Price Floor by 2015 and avoiding increasing the Carbon Price Support.
Chapters address income tax computation; taxation of trading income; capital allowances on plants and machinery; industrial buildings allowance and other allowances; basis periods; trading losses; property income; employment and self-employment; benefits in kind; national insurance contributions; pensions; capital gains tax; corporation tax; incorporation, disincorporation, and choice business medium; special classes of taxpayers; and partnerships.
However, some business owners are concerned that, together with the impact of the 2.5% VAT increase and reductions in capital allowances, it could still prove to be a barrier to taking on staff.
The certificate has enabled Jaspers to claim 100 percent First-Year Enhanced Capital Allowances (ECA) on the capital cost of the system.
You cannot deduct capital expenditure in working out taxable profits but some relief may be due in the form of Capital Allowances.

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