Tax changes for companies
Tax changes for companies at the end of March
by Scott Burkinshaw, Associate, Barber Harrison & Platt
R&D tax reliefs
R&D tax reliefs were introduced to give generous tax incentives to companies to encourage them to undertake research and development activities. The reliefs operate by giving an enhanced tax deduction to companies upon their qualifying expenditure.
For accounting periods ending before 31 March 2006, companies had six years from the end of the accounting period to claim these reliefs. However, for accounting periods ending on or after 31 March 2006, all claims to R&D tax reliefs must be made within 2 years of the end of the accounting period in which the expenditure was incurred.
There are transitional rules for accounting periods ending after 31 March 2002, but before 31 March 2006, that state that claims to R&D reliefs made in respect of those periods must be made by 31 March 2008.
Action required
Companies should consider whether they may be entitled to make claims for any accounting periods covered by the transitional rules above so that any claims can be made before 31 March 2008.
Capital allowances
In our October/November 2007 issue of The Knowledge, we explained that changes were being proposed to the capital allowances system. This system is the way in which businesses gain tax relief upon depreciation of their assets. Below is an example of how small and medium sized enterprises might claim capital allowances at present:
Jones Limited buys the following assets during year 1:
| Asset | Heating System | Computers |
| Cost | 10,000 | 5,000 |
| Tax relief in year 1 by way of 50% first year allowance | (5,000) | (2,500) |
| Tax written down value at end of year 1 | 5,000 | 2,500 |
| Tax relief in year 2 by way of 25% writing down allowance (WDA) | (1,250) | (625) |
| Tax written down value at end of year 2 | 3,750 | 1,875 |
The changes proposed to the capital allowances system that are likely to come into effect from 1 April 2008 are as follows:
An annual investment allowance (AIA) will replace first year allowances and will introduce a 100% allowance available on the first £50,000 of expenditure on plant and machinery. AIAs are available to most businesses.
“Integral features” in buildings such as the heating system above will attract a WDA of only 10%.
Industrial buildings allowances currently give tax relief upon the cost of industrial buildings. These are to be phased out over the next few years.
Action required
It is essential that businesses undergoing significant capital expenditure projects that straddle the introduction of the new rules seek recommendations as to whether altering the timing of the expenditure could improve their tax situation. Businesses with significant amounts of assets at present should also consider the effect of the above changes upon the ongoing tax relief available upon those assets.
We would be happy to advise upon either of the above issues so please contact Scott Burkinshaw (scott.burkinshaw@bhp.co.uk) or call us on 0114 2667171.