Corporation tax and capital allowances

The small companies’ rate of Corporation Tax (CT) will fall to 20% from 1 April 2011 and the main rate of CT will fall to 27% on 1 April 2011, with further 1% cuts in the following three years: to 26% in 2012-13; 25% in 2013-14; and 24% in 2014-15. For accounting periods straddling this date, profits will be split between the old rate and the new.

The benefit from the reduction in CT rates may be partly offset by changes in the capital allowances in 2012. The writing-down allowance for expenditure on ‘normal’ plant and machinery will be reduced from 20% to 18%. Expenditure qualifying for the special rate pool (i.e. long life assets, thermal insulation, integral features and cars purchased after April 2009 with emissions of 160g/km or more) will be reduced from 10% to 8%. The rate changes to capital allowances will take effect from 1 April 2012.

The Annual Investment Allowance (AIA) allows most businesses, regardless of size, to reduce their taxable profits by the full amount of their annual capital expenditure on most plant or machinery up to a maximum amount, which is currently £100,000 a year. The maximum amount of the AIA will be reduced to £25,000 a year with effect from 1 April 2012.

If you need to invest in large capital items it is advisable that you do this before April 2012. Please contact Prism if you would like us to draft some projections on the most tax efficient timing of such expenditure.