Accountancy in Great Britain

>> Allowances in Great Britain

Depreciation

Depreciation charged in the accounts is not generally an allowable deduction for tax purposes. Instead, tax depreciation is given through a system known as capital allowances.

Most businesses are eligible for an Annual Investment Allowance (AIA), of £200,000 with effect from 1 January 2016. Expenditure on plant and machinery up to the amount of the AIA qualifies for a 100%  tax write-off.

Expenditure on plant and machinery not covered by the AIA and on certain other types of capital assets may qualify for an annual writing down allowance of between 8% and 18%, the rate of which varies according to the type of asset. For most plant and machinery not covered by the AIA, the annual rate for writing down allowance is currently 18% (calculated on  a reducing balance basis).

It is not mandatory for a business to claim capital allowances.

A special form of tax amortisation may be available to companies in respect of expenditure incurred on certain intangible assets (including goodwill). However, the rules are complex in relation to this area and have undergone recent change. Broadly, amortisation of intangible assets acquired before 1 April 2002 or after 8 July 2015 will not be deductible for tax purposes.

Other investment allowances

  • A 100% tax write-off in year one is available for expenditure on certain environmentally friendly equipment and machinery.
  • Various grants and subsidies are available to set up businesses in areas in need of regeneration.
  • Enhanced tax deductions are available for qualifying expenditure by companies on R&D. For small and medium companies (as defined) the uplift is 130%, giving a tax deduction equal to 230% of the expenditure.
  • From 1 April 2013, a new R&D scheme was introduced for large companies allowing those which have trading losses to claim a cash credit from HMRC of roughly 9% of the qualifying R&D expenditure.
  • If a small or medium company makes a trading loss in a period in which it has claimed enhanced R&D tax deductions, it may surrender part of the loss in exchange for a tax credit payable in cash by HMRC. From April 2014, the maximum amount of cash payment that can be claimed is 14.5% of the uplift R&D expenditure.
  • Creative sector tax reliefs are available for expenditure by companies on high-end TV programmes, animation programmes, certain films, video games and certain theatre productions.

Latest version updated 11th October 2017

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