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Legislation in Finance Bill 2009 will introduce a temporary first-year allowance of 40% for expenditure on general plant and machinery.
This will be available to any individual carrying on a qualifying activity, any partnership, and any company.
The temporary allowance will apply to qualifying spending incurred in the 12 month period beginning on 1 April 2009 for the purpose of corporation tax, and on 6 April 2009 for the purpose of income tax.
As with previous and existing first-year allowances, there are exceptions where the expenditure will not qualify for the temporary first-year allowance.
The main exceptions include special rate expenditure (including long-life assets and integral features), expenditure on cars, and on assets for leasing.
Welcoming the increase, KPMG’s David Woodward said ‘there will be many manufacturers who see this as a U-turn.
'It is only two years since a package of reductions in the rates of capital allowances was introduced, which at the time significantly impacted the then booming manufacturing industry.
'With this measure the Chancellor has gone someway towards reversing this position.'
The change is aimed at boosting the economy, but Mr Woodward whether it will work: ‘The problem with a temporary increase is the time delay from deciding to make an investment and actually spending the cash.
'On any significant investment in specialised plant and machinery, the likelihood is any decisions made in the next few months will result in expenditure after the temporary increase in relief has passed.’
Furthermore, if the business does not have any taxable profits in the period, the extra tax relief will not realise any additional cash.
‘Ideally’, added Mr Woodward, ‘what we would like to have seen is a tax credit for any losses created by capital allowances, this would provide extra cash in businesses hands, to help fund the investment'.
