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Capital Allowance Calculations - Rate Change

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If the annual investment allowance changed during your accounting period

If your accounting period spans the dates when the annual investment allowance (AIA) changed, there are special, transitional rules for calculating how much allowance you can claim.

If your accounting period spans 1/6 April 2010

Where an accounting period spans 1/6 April 2010, the maximum allowance is the sum of:

  • the maximum entitlement based on £50,000 for that portion of a year falling before the date the limit changed
  • the maximum entitlement based on £100,000 for that portion of a year after the date the limit changed

However, only a maximum of £50,000 AIA can be claimed in respect of expenditure in that part of the accounting period that falls before 1/6 April 2010.

Example: a company that pays Corporation Tax calculates its AIA for an accounting period 1 January 2010 to 31 December 2010 as follows:

  • the portion of a year from 1 January 2010 to 31 March 2010, that is, 3/12 x £50,000 = £12,500
  • the portion of a year from 1 April 2010 to 31 December 2010, that is, 9/12 x £100,000 = £75,000

The total AIA is £87,500, but the maximum AIA available for expenditure in the first three months of the year is £50,000.

If your accounting period spans 1/6 April 2008

The AIA applies only to expenditure on or after 6 April 2008 for Income Tax, or 1 April 2008 for Corporation Tax. Where your accounting period started before this date, your AIA will be proportionately reduced.

If your accounting period spans 1/6 April 2012

Where a business has an accounting period that spans 1/6 April 2012, (the date of the decrease from £100,000 to £25,000), the maximum allowance for that business's transitional period is made up of two parts:

  • the AIA entitlement, based on the previous £100,000 annual cap for the portion of a year falling before the date of the change
  • the AIA entitlement, based on the new £25,000 cap for the portion of a year falling on or after date of change

Example: a business with a calendar year accounting period from 1 January 2012 to 31 December 2012 would calculate its maximum AIA entitlement based on:

  • the proportion of a year from 1 January 2012 to 31 March 2012, that is, 3/12 x £100,000 = £25,000
  • the proportion of a year from 1 April 2012 to 31 December 2012, that is 9/12 x £25,000 = £18,750

The business' maximum AIA for this transitional accounting period would therefore be the total of (a) + (b) = £25,000 + £18,750 = £43,750.

However, for the part period falling on or after 1 April 2012 even if the company spent more than £18,750 no more than £18,750 of the business' actual expenditure in that part period would be covered by its AIA entitlement.

Calculating writing-down allowances if your accounting period spans a rate change

If your accounting period spans one of the dates when the writing-down allowance (WDA) changed, there are special, transitional rules for calculating how much allowance you can claim.

If your accounting period spans 1/6 April 2008

The rate of WDA for business expenditure on plant and machinery changed from the 6 April 2008 for Income Tax, 1 April 2008 for Corporation Tax:

  • from 25 per cent to 20 per cent for general plant and machinery
  • from 6 per cent to 10 per cent for long-life plant and machinery

Therefore, for accounting periods that started before 6 April 2008 for Income Tax, before 1 April 2008 for Corporation Tax and ended in or after 6 April 2008 for Income Tax, 1 April 2008 for Corporation Tax, a hybrid rate of WDA applies.

If your accounting period spans 1/6 April 2012

If your business' accounting period spans the date for the change of rate of (WDA) (1 April 2012 (Corporation Tax) or 6 April 2012 (Income Tax)), a hybrid rate is used to calculate the rate of WDA for that transitional period.

The hybrid rate for the main plant and machinery pool is arrived at by calculating the proportion (in days) of the chargeable period falling before the change date, and the proportion (in days) falling after it, calculating the rate for each portion at the 20 per cent and 18 per cent rates respectively, and then adding the two percentages together.

The hybrid rate for the special rate pool is calculated in the same way, but by applying the 10 per cent and 8 per cent rates to the portion of the period before and after the change date respectively, and once again, by then adding those two percentages together.

Example

A company with a calendar year accounting period from 1 January 2012 to 31 December 2012 (a leap year) would calculate its hybrid rate for WDA entitlement based on:

  • (a) number of days 1 January 2012 to 31 March 2012, that is, 91/366 × 20 per cent = 4.97 per cent
  • (b) the proportion of a year from 1 April 2012 to 31 December 2012, that is, 275/366 × 18 per cent = 13.52 per cent

The hybrid main rate WDA for this transitional accounting period would therefore be the total of (a) + (b) = 18.49 per cent.

The calculation of the hybrid rate for the special rate of WDA would be as follows:

  • (a) 91/366 × 10 per cent = 2.49 per cent plus
  • (b) 275/366 × 8 per cent = 6.01 per cent

The hybrid special rate for this transitional period is the total of (a) + (b) = 8.5 per cent.

 

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