Compact Services

  2010 Budget - Business Tax

Businesses in general pay PAYE in respect of their employees, and VAT on turnover if they are required to be registered for that tax. Unincorporated businesses (sole traders and partnerships) pay income tax and NIC on their profits; companies pay corporation tax on all their profits including capital gains.

Capital allowances

Neither capital expenditure nor depreciation is generally allowed as an expense. Instead, many classes of capital expenditure receive a capital allowance, which may spread the cost over several years, and which is not related to the accounting depreciation.

The major categories of capital allowance in 2010/11 are:

Plant and machinery  
  • approved energy saving plant 100%
  • low emission cars (rating up to 110g/km) 100%
  • first 100,000 expenditure per year* 100%
  • writing down allowance on general pool 20%
  • writing down allowance on special rate pool** 10%

Research and development: capital equipment
100%

Buildings (excluding land value)
  • industrial buildings: straight line allowance 1%
  • agrigultural buildings, qualifying hotels 1%
  • enterprise zone commercial buildings in first year 100%
  • enterprise zone buildings if 100% not claimed in first year 12.5%
  
The above buildings allowances are being phased out by 2011.
 

  • converting vacant space over commercial premises into flats
100%

Know-how and patent rights (not corporation tax)
25%
    
  *50,000 up to 31/3/10 (companies) 5/4/10 (income tax traders)  
  **The special rate pool contains cars with CO2 ratings above 160g/km, long life assets, plant integral to buildings and thermal insulation. The general pool contains other plant including lower emission cars.  

Different rules for corporation tax

Certain categories of capital expenditure by companies are treated differently. New expenditure on 'intangible assets', including goodwill, know-how and patent rights, is in general relieved for tax according to the accounting treatment (ie depreciation).

There are increased allowances for companies which clean up contaminated land or carry out R&D work - the expenditure is uplifted for tax purposes, effectively creating a grant for doing the work. The uplift is 50% for land remediation, 75% for small/medium company R&D, and 30% for large company R&D.