She is also advised of the important deductions available under the Corporation Tax so that the company can invest surplus funds suitably by way of tax planning measures to claim the allowances and deductions wherever possible.
While the company can claim all the business expenses incurred by it during any financial year, there are certain other provisions governing the capital expenses incurred by the company for the purposes of the business. These are called capital allowances and these allowances cover the expenses incurred for the improvement of the business of the company. By allowing these capital expenses the Corporation Tax Act promotes the working of the companies towards progress.
The company can write off all the revenue expenditures incurred by the company against the income being earned by the company. These expenses are in the nature of the expenses which the company has spent for the promotion of the business of the company. For claiming deduction, these expenses should have been incurred wholly for business purposes and during the previous year. The examples of these expenses include salaries of employees, insurance expenses and other administrative expenses like auditor fees. The company is authorized for the deduction of the interest paid by the company to the banks or other financial institutions for the loans availed by it for business purposes. The interest should have been paid actually during the previous year.
The first allowance is in the nature of depreciation on all working assets including industrial buildings and plant and machinery that are being used by the company for manufacture of products. An amount equal to 4 percent of the cost of the industrial buildings can be claimed by the company by way of writing down allowance. For claiming this deduction the company should have put to use the building in respect of which the deduction is being claimed. When the company constructs some building in enterprise zone the company can claim the whole cost of the building as deduction from the chargeable income.
The position of the writing down allowance in respect of the plant and machinery belonging to the company is as follows:
In general 25 percent on the written down value method is allowed as deduction for the large companies. In the case of small and medium companies there is a first year allowance equal to 50 percent of the cost of plant and machinery that can be claimed as a deduction from the income of the company. The companies that spend capital expenditures on machinery which are using energy saving technology can claim the total value of the machinery in full without limits by way of enhanced capital allowance. Bu for claiming the enhanced capital allowance the technology should be one recognized by the government. The amount of the capital expense can be claimed in full in the first year itself. But if the company feels that the company would be in an advantageous position then the company may choose to carry forward the deduction for the future years and claim the allowance in part.