Please note that the 100% First Year Allowance which had previously been available for all business expenditure relating to IT related equipment, had not been extended this year, so for It related equipment bought after 31 March 2004, only the normal First year allowance is available.

Also, the normal First Year Allowance has gone up from 40% to 50% from 6 April 2004.

For those of you who may be new to this, a brief explanation of capital allowances:

Capital allowances are the taxman’s version of depreciation. These will reduce your taxable profit, and therefore your tax.

If you buy equipment on 7^th August 2004 for £20,000, you will get a capital allowance of 50% in the first year (£10,000). Your taxable profit will be reduced by this amount, so if you are a higher rate taxpayer, you will effectively pay £4,000 less tax. (£10,000 Í 40%).

Next, year, you will get the normal written down allowance on this equipment – that is 25% every year (except the first when you get a first year allowance) on a reducing balance basis.

So, your capital allowance on this equipment would be £2,500 (25% of £10,000).

In the third year, the balance of this equipment would be £7,500 (£20,000 less allowance in year 1 of £10,000 less allowance in year two of £2,500). So your capital allowance would be £1,875 (25% of £7,500).