Capital allowances are available on money spent on buying plant and machinery. A major reform of the system was introduced for companies on 1 April 2008.

From 1 April 2008 a company is now allowed to write off the total amount it spends on buying plant and machinery (normally up to a maximum of £50,000 per year) against its profits in the year of purchase. This represents a significant cashflow advantage to the company.

Example

Company’s taxable profits for the year ended 31 March 2009
£60,000

Normal tax bill (£60,000 x 21%)
£12,600

If the company had invested £50,000 in plant and machinery: –

New taxable profits (£60,000 – £50,000)
£10,000

New tax bill (£10,000 x 21%)
£2,100

Tax saving (£12,600 – £2,100)
£10,500

This is a 21% tax saving for the year the amount was invested

This 100% write off is normally available for the first £50,000 spent per year by a company on plant and machinery. The whole £50,000 limit will however not be available in certain cases (eg. if your accounting period is less than a full year, for the first accounting period ending after 1 April 2008 or if you have more than one company).

If your company is considering investing in plant and machinery and you wish to know if it will be entitled to the full £50,000 allowance and how it will affect the company’s tax position please contact us.