A publication aiming to kickstart a conversation with businesses about how to reform the UK’s capital allowances regime was published last month by HM Treasury. Comments on the publication are requested by 1 July 2022. Chartered Accountants Ireland will be responding to this. Send your feedback to leontia.doran@charteredaccountants.ie by Friday 17 June 2022.
The Spring Statement sets out some illustrations of the types of changes the Government could make to the current capital allowances regime. Options to do so are being considered ahead of the Budget which is expected to take place in the Autumn. Part of this is continuing to review the latest evidence, including the impact of the super-deduction and views of businesses.
The key areas of interest set out in the publication are as follows:-
- Investment decisions – the Government would welcome evidence from stakeholders on how firms make investment decisions, the relative importance of capital allowances in those decisions, and how they are taken into account, such as by reference to net present values, cash-flow benefits or impacts on effective tax rates;
- The super-deduction – the Government wants to incorporate the latest evidence on the impact of the super-deduction into its decision-making. As part of this, it is keen to hear views on how the super-deduction has affected the investment decisions of businesses; and
- The current system of capital allowances – as set out at Spring Statement, the Government acknowledges that the generosity of the permanent capital allowances available in the UK compares unfavourably to some international peers and wants to know what more the capital allowances regime can do to support business investment.
The Government would welcome stakeholder views on how far capital allowances rates influences decisions by multinationals on which territory to invest in and on levels of awareness of the current system, how simple it is to understand and operate, and whether it provides adequate support for business investment.
In respect of the options set out at Spring Statement, the Government would welcome views on these which included:-
- increasing the permanent level of the Annual Investment Allowance;
- increasing the rates of Writing Down Allowances;
- introducing general First-Year Allowances (“FYA”) for qualifying expenditure on plant and machinery;
- introducing an additional FYA; and
- introducing permanent full expensing.
Whilst some have called for full expensing to be introduced following the end of the super-deduction on 31 March 2023, at its peak this could cost over £11 billion in a single year. If sufficient funding were to be available, the Government is interested in stakeholder views about whether this would be best spent on full expensing or better targeted through other options (including non-tax options). Similarly, the Government welcomes views on how best to target its approach if less funding is available.
The options will have different outcomes for different types of business and for the economy more widely. For instance, the impacts of the options will vary depending on whether a business is incorporated or unincorporated, profit or loss-making, and the extent to which it values an immediate cash benefit. In addition, the options may impact incentives for firms to use debt over equity finance. The Government is therefore interested in views on the advantages and disadvantages of the options, including in light of these factors.
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