First year allowance is a concept from the books of British Business Legislation. In United Kingdom, first year allowance is actually a tax benefit that allows British organizations to claim for the eligible machinery purchases. In this system, when some organization is getting installed, then the founders can claim for the tax rebate on the purchase of initial machinery during first year of operation. Government of United Kingdom provides this kind of benefit to encourage the speedy set up of businesses and also to facilitate the taxable profits of new organizations. This system reduces the strain on first year’s cash flow statements of organizations. British government allows first year allowances for various types of investments like energy saving equipments, hardware and software devices etc.
First year allowance in world
Following the imitative of British government, many countries have started providing such benefits to entrepreneurs. This allowance is also known as “enhanced capital allowance”. In India and Unites States of America enhanced capital allowance is available to the entrepreneurs to facilitate their expenditure on some specific items like water conservation equipments, energy saving equipments, low emission machinery etc. The extent of allowances varies from 6 % to 100 % depending upon the utility and importance of machinery for the business and for the society.