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 in 2007/08 are:
Plant and machinery  
* general: writing down allowance on residue of expenditure 25%
* small businesses: first year allowance 50%
* medium businesses: first year allowance 40%
* 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%
* agricultural 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%
Major changes have been announced to take effect in 2008/09.
 
Different rules for corporation tax
Certain categories of capital expenditure by companies are treated differently. New expenditure on 'intangible assets', including goodwill, know-how and patent rights, is in general relieved for tax according to the accounting treatment (ie depreciation).

There are increased allowances for companies which clean up contaminated land or carry out R&D work - the expenditure is uplifted for tax purposes, effectively creating a grant for doing the work. The uplift is 50% for land remediation and for small/medium company R&D, and 25% for large company R&D. These are set to increase in 2008.