Measure
The key capital allowances measure introduced in this Budget is a temporary first year allowance of 40% for main pool expenditure. Such expenditure would otherwise have attracted a writing down allowance of 20% in the year. As with other FYA, this will not be available in respect of leased assets or cars, neither will it apply to special rate expenditure on long-life assets or integral features. The Treasury estimates that the cost of this measure is expected to be in the order of £1.64bn but will support investment of around £50bn.
Who will be affected?
This measure will apply to all businesses spending in excess of £50,000 on plant or machinery (the first £50,000 will still continue to attract a 100% Annual Investment Allowance).
When?
This will apply to expenditure incurred in a 12 month period commencing on 1 April 2009 for companies and 6 April 2009 for individuals.
Our view
A similar 40% FYA was previously introduced for a 12 month period in the last recession in 1992/1993 to encourage businesses to continue to invest equipment and technology. Whilst the measure is purely one of timing, a doubling of the level of writing down allowances for expenditure incurred within the period should encourage many businesses to push forward with plans to invest that they might otherwise have considered deferring in the short term.
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