A publication aiming to kickstart a conversation with businesses
about how to reform the UK’s capital allowances regime has been
published today.
The Chancellor has called on businesses of
all sizes to have their say, after his Spring Statement pledged
to look at how to sustainably cut and reform business taxes ahead
of the Autumn Budget.
Today’s publication sets out how firms can work with the
government on capital allowances to help foster a new culture of
enterprise and growth in the UK, with responses requested by 1
July 2022.
Chancellor said:
I want to build on the momentum of the super-deduction to drive
and sustain growth in the UK, and we’re committed to doing that
through cutting and reforming investment taxes.
Today we take another step forward in delivering on that – and I
encourage businesses of all sizes, right across the UK, to have
their say.
The UK has a long-standing issue with productivity and one of the
key underlying causes is a lack of capital investment.
According to OECD data, companies invest just 10% of GDP each
year, compared with 14% in our competitor countries – our tax
system doesn’t reward investment as much as other countries do.
The government is investing £600 billion over the next five years
and ministers want businesses to invest more too.
Ahead of the end of the super-deduction, the largest two-year
business tax cut in modern British history, next year, the Spring
Statement set out some illustrations of the types of changes
government could make to the current capital allowances regime.
Today’s guidance delves into those options in further detail,
which includes:
- increasing the permanent level of the Annual Investment
Allowance
- increasing the rates of Writing Down Allowances
- introducing general First-Year Allowances (FYAs) for
qualifying expenditure on plant and machinery
- introducing an additional FYA
- introducing permanent full expensing
While some business organisations have called for full expensing
to be introduced following the super-deduction, this could cost
over £11 billion a year. The government is keen to hear views as
to whether that would be well targeted if funding is available,
and if it isn’t available, how to best target our approach.
Further information
- In addition to the Spring Statement options, the guidance
published today has three further areas of interest:
i) 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.
ii) 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, we are interested in views on
how the super-deduction has affected the investment decisions of
businesses, ahead of it ending in 2023.
iii) The current system of capital allowances – As set out at
Spring Statement, the government acknowledges that the generosity
of the permanent system of capital allowances compares
unfavourably to international peers and wants to know what more
the capital allowances regime can do to support business
investment.
-
By publishing the options available at Spring Statement and
now welcoming views from industry, we are increasing
transparency in capital allowances policy-making and starting
a national conversation on the best way to proceed. We want
to ensure that industry views can be fully considered and
inform any Budget announcements ahead of the end of the
super-deduction next year.
-
OECD data
- Read today’s publication here. Views must be
submitted by 1 Jul 2022.
- Read our Tax Plan
- The UK’s business community includes UK businesses, tax
professionals, research institutions and others.
