The Budget proposes the introduction of a temporary first year allowance for all businesses at a rate of 40% on qualifying capital spend incurred in the one-year period from April 2009. This will be in addition to the Annual Investment Allowance, which is a 100% allowance that was introduced from April 2008.

Baker Tilly analysis

This initiative is particularly welcome because it will help all companies. It will also compensate to some extent for the reduced allowances following the earlier lowering of the main capital allowance rate from 25% to 20% from 1 April 2008. In addition, there is the indirect benefit that it will encourage companies to bring forward delayed investment programs and this can only benefit the economy as a whole.

In detail

Since 1 April 2008 companies have been able to claim an Annual Investment Allowance (AIA) at 100% of £50,000 of qualifying spend in a 12-month accounting period. For a group of companies and certain other related companies only one AIA is available to share.

In addition to the AIA to which it may be entitled, the proposal is to allow each company to claim a 40% first year allowance on qualifying spend incurred in the one year from 1 April 2009 in place of the existing 20% writing down allowance.

Expenditure which will qualify for the temporary first year allowance will exclude expenditure on cars, assets held for leasing and on expenditure which falls to be included in a separate 10% special rate pool.