The Super Deduction introduced a generous and unprecedented 130% first-year allowance on qualifying plant and machinery. This relief is due to end in March 2023, and the government are now considering reforms to the UK’s capital allowances regime, intending to “foster a new culture of enterprise and growth in the UK”.
As part of their analysis in the Spring Statement 2022, the government has recognized that, once the Super Deduction ends, the UK’s capital allowances regime is less generous than the average of the countries that form the OECD (Organization for Economic Cooperation and Development).
The purpose of any potential reform would be to offer a more generous tax relief regime for capital investment, encourage growth and improve our global standing in capital investment relief to become more competitive.
The government has invited stakeholders to give feedback on the current capital allowances regime and input on a few suggestions of what the potential reforms might look like.
Below are the suggestions made by HM Treasury:
We at Catax welcome the recognition by HM Treasury to reform the capital allowances regime to become more generous and globally competitive. A generous reform would offer our clients a better return on their capital investment, and we would agree with the government’s outlook that these reforms will promote a new culture of growth.
Of the options presented above in the Spring Statement, we believe the best incentive to encourage growth is relief that offers taxpayers an upfront investment return. The increase to the permanent level of the AIA is an excellent example; the current £1 million AIA has allowed most of our clients to receive a quick cash injection into their business. This creates the opportunity to reinvest funds or make an investment project more affordable.
Comparing this to when taxpayers are restricted to writing down allowances, the relief and return on the investment are considerably slower.
It is this reason why we believe the following options presented in the spring statement would be best suited for the reforms;
We have also identified other areas for HM Treasury to consider as part of the reforms;
Catax was grateful for the opportunity to be part of the conversation and feedback directly to HM Treasury with the above. We are eager and optimistic about the Autumn budget.
Even with a change in Prime Minister in the coming weeks, we hope the potential reform to capital allowances is still high on the agenda for HM Treasury to create growth and move the economy away from the recent downturn.
If you would like further reading, please see the full spring statement here.
Or the full reform details can be found here.