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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 |
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| • 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. |
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• converting vacant space over commercial premises into flats |
100% |
Know-how and patent rights (not corporation tax) |
25% |
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| *£50,000 up to 31/3/10 (companies) 5/4/10 (income tax traders) |
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| **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. |
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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.
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