Tax advantages - Register a Company UK

Details of tax advantages for new businesses

There is a range of tax advantages which businesses may be able to use to reduce their tax bill.

Capital allowances

Capital allowances allow businesses to write off the cost of purchasing certain assets against their taxable income.

For chargeable periods that relate to corporation tax and begin on or after 1 April 2008, or that relate to income tax and begin on or after 6 April 2008, you can claim a 100 per cent 'annual investment allowance' (AIA) on the first £50,000 of your total capital expenditure on:

plant and machinery (excluding cars)
long-life assets, ie assets that will have a useful economic life of at least 25 years when new
integral features of a building, eg water, ventilation, cooling and heating systems, lifts and escalators
adding thermal insulation to an existing building

This new allowance lets you deduct up to £50,000 from your taxable profit.

Unrelieved expenditure over the £50,000 AIA enters the normal capital allowances regime. Expenditure entering the main rate pool normally qualifies for a 20 per cent capital allowance. However, for the 12 month period beginning on 1 April 2009 for corporation tax, and 6 April 2009 for income tax, new expenditure (excluding cars, expenditure on assets for leasing and special rate expenditure) temporarily qualifies for a 40 per cent capital allowance. Expenditure entering the 'special rate' pool (long-life assets, thermal insulation and integral features) qualifies for a 10 per cent capital allowance.

Where individuals (not companies) use an asset for both business and private purposes allowances can only be claimed for the business proportion of use. A separate calculation is required for each item of plant and machinery - including cars - that is used privately.

Business cars

For chargeable periods commencing on and after 1 April 2009 for corporation tax and on and after 6 April 2009 for income tax, new expenditure on cars (with no private use) will be allocated to one of the two general plant and machinery pools according to the car's CO2 emissions:

cars with CO2 emissions of 160 grams per kilometre (gm/km) driven or less qualify for 20 per cent capital allowances per year in the main rate pool
cars with CO2 emissions over 160gm/km driven qualify for 10 per cent capital allowances per year in the special rate pool

Expenditure on cars which are used both for business and non business purposes will continue to be dealt with in single asset pools to enable the private use adjustment to be made. The rate of allowances for these pools (20 per cent or 10 per cent) will depend on the cars CO2 emissions.

Businesses can claim a 100 per cent first year allowance (adjusted if necessary to take account of private use) for expenditure on cars whose CO2 emissions are 110gm/km or less, and for expenditure on natural gas, biogas and hydrogen fuel refuelling equipment.

In the case of leasing there is a 15 per cent restriction of the amount a lessee can claim as a deduction for rental payments on cars that emit over 160 grams of CO2 per kilometre driven.

Cars purchased before 1 or 6 April 2009 will continue to be treated under the old rules for a transitional period of five years so that expenditure on cars costing less than £12,000 (with no private use) will continue to be dealt with in the main rate pool (20 per cent capital allowance) regardless of their emissions. Expenditure on cars that cost in excess of £12,000 will continue to be pooled in single asset pools with a 20 per cent capital allowance capped at £3,000 per year.

The transitional period for cars purchased before 1 April 2009 for corporation tax and before 6 April 2009 for income tax will end on the last day of the business' first chargeable period to end on or after 31 March 2014 for corporation tax and 5 April 2014 for income tax.

Enhanced capital allowances

Businesses can claim 100 per cent enhanced capital allowances (ECAs) for investment in designated energy efficient or environmentally beneficial (water saving) technologies and low-carbon-emission cars.

Loss-making companies can surrender losses attributable to investment in these environmentally friendly technologies in exchange for a first-year tax credit from the government, in most cases this is a cash payment.

Read information on ECAs on the ECA website - Opens in a new window.

Business Premises Renovation Allowance

From 11 April 2007, businesses in designated disadvantaged areas have been able to claim 100 per cent capital allowances on the costs of renovating or converting business properties that have been vacant for more than one year provided that those costs were incurred on or after 11 April 2007.

Find out more about the Business Premises Renovation Allowance on the HM Revenue & Customs (HMRC) website - Opens in a new window.

Equipment lent to employees

Tax and National Insurance contributions are not payable on the value of any office services, equipment and consumables used by employees for business purposes. The benefit must be provided in the employer's premises and any private use of the benefit by employees must not be significant. Where the benefit is provided elsewhere (for example to enable the employee to work from home) the benefit must be used for business purposes and any private use of the benefit must not be significant.

Tax relief and credits for research and development

Qualifying small and medium-sized companies can deduct an allowance of 175 per cent of appropriate research and development (R&D) spending when calculating their taxable profits. If your company isn't in profit it may be able to exchange its R&D losses for a cash payment from the government.

A separate scheme exists for qualifying capital expenditure on R&D which attracts R&D capital allowances.

Find out more about R&D capital allowances on the HMRC website - Opens in a new window.

Stamp duty exemptions

Businesses in specified disadvantaged areas are exempt from stamp duty on residential property transactions up to £150,000 (normally £125,000 elsewhere). Currently all residential properties costing less than £175,000 are exempt from stamp duty. This exemption ends on 31 December 2009 when the stamp duty threshold for residential properties will revert to £125,000.

The exemption from stamp duty for commercial property transactions in disadvantaged areas ended on 17 March 2005.

Find out about stamp duty exemptions in disadvantaged areas on the HMRC website - Opens in a new window.

Enterprise investment scheme

This scheme helps certain types of small unquoted companies to raise capital by providing tax relief for investors in these companies.

Read more about the Enterprise Investment Scheme on the HMRC website - Opens in a new window.

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