To help fund reductions in corporation tax, the Chancellor announced a number of changes to plant and machinery capital allowances to take effect from April 2012.
The annual investment allowance, which enables companies to obtain an immediate write off against profits for most expenditure on plant and machinery is to be reduced from the current level of £100,000 to £25,000 from April 2012.
Also from April 2012, the rate of writing down allowances for plant and machinery will be reduced from 20% to 18% for expenditure in the main rate pool and from 10% to 8% for expenditure in the special rate pool (which, from April 2009, includes cars with CO2 emissions in excess of 160g/km).
The reduced rates of writing down allowances will take effect for accounting periods beginning on or after 1 April 2012 for corporation tax purposes and 6 April 2012 for income tax purposes. However, the reduced rates will not apply until 1/6 April 2012 and writing down allowances for periods that span these dates will be calculated by reference to a hybrid rate. The hybrid rate is a weighted average of the rates before and after the change and reflects the number of days in the period before the rate change and the number of days in the period after the rate change.
The necessary legislation to give effect to these changes will be included in a subsequent Finance Bill. Further details on the measures are available in Budget Note 04.