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Business Tax

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

Capital expenditure is not 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 are:

Plant and machinery   * general: writing down allowance on residue of expenditure 25% * small and medium businesses: first year allowance* 50% * medium businesses: first year allowance 40% * small businesses: computer equipment (purchased up to 31.3.04) 100% * all businesses: approved energy saving plant 100% Cars   * general: writing down allowance (max £3,000pa) 25% * low emission cars (rating up to 120g/km) 100% Long life plant: writing down allowance 6% Research and development: capital equipment 100% Buildings (excluding land value)   * industrial buildings: straight line allowance 4% * agrigultural buildings 4% * qualifying hotels 4% * enterprise zone commercial buildings 100% * enterprise zone buildings if 100% not claimed in first year 25% * converting vacant space over commercial premises into flats 100% Know-how and patent rights (not corporation tax) 25%