Government Reviews Capital Allowances for Business and Commercial Property

Taxpayers save around £21bn a year in tax through the capital allowances system of claiming on cars, machinery, and property. The Office of Tax Simplification (OTS) cites that statistic in releasing its 88 page conclusion last week on simplifying capital allowances, and the question of whether businesses should claim a simplified version through their accounts depreciation instead.

The headline to take from the OTS report is really that the relief seems here to stay, though it’s not a clean bill of health on “simplicity”.  The OTS says in its summary that “replacing CAs with depreciation would be a radical change. It could be done and this report describes how. It is not clear that it should be done. The long term benefits it would deliver would not be enough to make the disruption worthwhile. However, nothing in this review has made the structure of the CA regime seem simple. It is complicated and at times unfair as between different businesses. The only benefit of the way that tax relief is currently given is that it exists already and some people are familiar with it.

 

The Annual Investment Allowance (AIA) is flagged as a success. The AIA allows businesses to write off up to £200,000 a year of qualifying capital assets against their profits. HMRC estimates that the AIA means around 80% of business then have no further need to calculate different rates of relief on different types of assets.    The OTS recommends that increasing the AIA threshold would be a quick win to simplify some aspects of capital allowances for businesses. It would also have the benefit of cash flow for larger businesses.

 

On the specialised area of capital allowances on property the OTS writes that changing it would be “contentious as some would gain and others lose compared with the current CAs”.    Overall, the OTS reports that no great desire for change has been expressed to them, though in the longer term changes may yet come.

 

At Garbutt + Elliott we have a specialised capital allowances team which advises on and identifies millions of pounds worth of allowances for our clients each year, particular in the specialised area of property – from flagpoles, to sloping floors in breweries.

 

Rob

Head of Business Tax