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Law: New deal on capital allowances from April 2008

In a new deal on capital allowances from April 2008, businesses will be able to take the first £50,000 spent on equipment and set it against the profits for that year.

In the past, this has been written off against profits over a series of years. This allowance should cover most items of plant and machinery purchased by smaller businesses. But, cars will not be included in the total. If a business spends more than £50,000 in one year the excess will be written off against profits at a rate of 20% each year.

The current rate is 25% a year. Limited companies will be able to claim 50% of first year allowances on equipment purchased before 1 April 2008. Unincorporated businesses will have until 6 April.

Where equipment is integrated into a company building then 25% of the reducing costs per year is set against profits. This will reduce to 10% from 2008.

Capital allowances available for the cost of industrial and agriculture buildings will be hit severely.

They will reduce on a sliding scale of 1% a year from the current 4% 2007 to 1% in April 2010. No allowances will be due for the majority of buildings from April 2011. However balancing adjustments ceased after 21 March 2007, meaning no repayments on disposals.

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