capital allowances

capital allowances
For qualifying equipment (i.e. plant and machinery but also including a licence of computer software) a proportion of the capital cost can be used to relieve tax: the relevant amount is set against company revenue which would otherwise be taxable profit. Most plant and equipment used in business attracts a 25% writing down allowance. A first year 100% capital allowance applies to expenditure on information and communications technology incurred by small enterprises during the three years to 31st March 2003. Expenditure on machinery or plant by small and medium sized businesses will qualify for a first year allowance at 40 per cent of the cost. Long life assets, those with an expected life of 25 years or more, have a 12 per cent allowance in the first year and six per cent thereafter. These rates apply to small or medium sized enterprises (SMEs).

Easyform Glossary of Law Terms. — UK law terms.


capital allowances
Expenditure on capital assets is not deductible against trading income. However, capital allowances may be available which are the tax equivalent of depreciation but which are not available in respect of all capital assets. When a company purchases a capital asset on which capital allowances are available, it can deduct a proportion of the cost of the asset each year as an expense in the calculation of income profits. The rate of the allowance varies according to the nature of the asset. For example, the standard writing down allowance for plant and machinery is 25% a year but a reduced rate of 6% applies to assets which, broadly, have a working life of 25 years or more.
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Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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