Plant and machinery - Writing Down Allowances (WDA)
Unlike income tax bands, the corporation tax rate is applied to the total taxable profits of the company. Therefore a company with profits of £400,000 would have a corporation tax liability of £100,000 (being 25% of £400,000). The operation of marginal relief acts to gradually increase the rate of corporation tax from 19% to 25% - broadly this results in an effective tax rate of 26.5% on profits which fall between £50,000 and £250,000. Companies are taxed on the basis of their accounting period which usually aligns to the period for which the company prepares accounts.
companies are subject to corporation tax on profits. In addition, individuals may be subject to income tax on the extraction of profits from the company; thus profits may be taxed on both the company and the individual. However, there may be cash savings to operating as a company as the corporation tax rate will be lower in some circumstances than the applicable income tax rate on the profits. Corporation Tax The rate of corporation tax payable is dependent on the level of taxable profits in the company (plus certain dividends received by the company).
Plant and machinery purchased by a business is eligible for annual WDA of 18% per annum for most plant and machinery and 6% per annum for certain expenditure which is ‘integral’ to a building such as air conditioning or water systems and other long life assets. These allowances are calculated on a reducing balance basis rather than straight line on cost. Plant and machinery - Annual Investment Allowance (AIA) The AIA gives a 100% write off on most types of plant and machinery costs, but not cars, of up to £1,000,000 per annum. Any costs incurred in excess of the AIA will attract an annual ongoing allowance of 6% or 18% depending upon the type of asset. Motor cars The tax allowance on a car purchase depends on CO 2 emissions. From April 2021 purchases of cars with emissions not exceeding 50g/km attract an 18% allowance and those in excess of 50g/km are only eligible for a 6% allowance. A first year allowance (FYA) of 100% is available on new zero emission cars (for cars purchased before 1 April 2025). Structures and Buildings Allowance (SBA) The SBA gives allowances of 3% per annum to qualifying expenditure on the construction of new or the renovation of non-residential structures and buildings. Companies Unlike sole traders and partnerships who are subject to income tax on the trading profits of the business,
Taxable profits £
Corporation tax rate %
0 - 50,000
19%
50,000 - 250,000
25% less marginal relief
Over 250,000
25%
Running a Business
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