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The Chancellor introduced two related capital allowances measures in Wednesday's Budget alongside confirmation of Treasury's intention to change the legislation relating to land remediation relief:

First year allowance for all businesses

The key provision was the introduction of a temporary first year allowance of 40% for main pool expenditure, which would otherwise attract a writing down allowance rate of 20%, incurred in 12 month period commencing on 1 April 2009 for companies and 6 April 2009 for individuals. This will apply to businesses spending in excess of £50,000 on plant or machinery as the first £50,000 will continue to attract a 100% Annual Investment Allowance. As with other FYA, this will not be available in respect of leased assets or cars; neither will it apply to special rate expenditure on long-life assets or integral features. The Treasury estimates that the cost of this measure is expected to be in the order of £1.64bn but will support investment of around £50bn.

A similar 40% FYA was previously introduced for a 12 month period in the last recession in 1992/1993 to encourage businesses to continue to invest equipment and technology.

Enhanced capital allowances (ECA) scheme

As has become expected in each Budget since the introduction of the ECA regime in 2001, the list of qualifying technologies has been updated.

Uninterruptible power supplies (UPS), air to water heat pumps and close control air conditioning systems have all been added to the list of energy-saving technologies qualifying for the 100% first year allowances, whilst three forms of heat pumps have been removed. Further minor housekeeping changes are also to be made to the existing criteria for both the energy saving and water efficient schemes. The changes to the schemes will have effect on or after a date to be appointed by Treasury order prior to the summer 2009 Parliamentary recess.

The significant NPV benefit of up to circa 30% in securing ECA, remains despite the introduction of the temporary 40% FYA above, as generally assets otherwise attracting ECA would qualify as special rate assets and only receive writing down allowances at a rate of 10%.

Extension to land remediation relief

The consultation on the changes announced by Treasury in both the 2008 Budget and Pre Budget Report 2008 to extend land remediation relief to expenditure on long-term derelict land and the removal of Japanese Knotweed through treatment on site has closed. The extensions to the existing regime have now received ministerial sign off and we expect to see relevant legislation enacted in Finance Act 2009. The extension is estimated to cost the Exchequer around £30-40 million a year over the next 5-10 years.

The Government is also amending the existing regime to align the qualifying conditions more closely with the work that is done to obtain planning consent. The intention is that companies will be able to tell whether they will qualify for the relief at the time they submit their planning application, meaning that the relief is more likely to influence decisions as to which land is redeveloped.