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May 15th 2022

Capital allowances regime under review

The UK Government is reviewing the capital allowance regime and stakeholders, including businesses of all sizes, are being invited to share their thoughts.

Significant reforms may be on the cards as the government reiterates its commitment to support business investment to "help foster a new culture of enterprise and growth in the UK". The impact of the recently introduced "super-deduction" will come under the spotlight.

In the policy paper published earlier this month, three areas of interest are highlighted:

  • Investment decisions - how firms are making investment decisions and the relative importance of capital allowances in those decisions;
  • The super-deduction - how has the super-deduction impacted decision-making; and
  • The current capital allowances system - recognising that the UK system compares unfavourably to some international peers, what could be done to improve the regime to better support business investment?

The Chancellor set out a number of options for change in the Spring Statement; views are now sought on the following:

  • Increasing the permanent level of the Annual Investment Allowance (AIA) - the permanent level of AIA is currently £200,000 though this has temporarily been increased to £1m until March 2023;
  • Increasing the rates of Writing Down Allowance (WDA) - the current rates are 18% for assets going into the Main Rate Pool, and 6% for assets going into the Special Rate Pool (historically these rates were much higher);
  • Introducing a general First Year Allowance (FYA) for qualifying expenditure on plant & machinery - FYAs are uncapped and do not count towards the AIA limit, the policy paper suggests a 40% FYA for Main Rate expenditure;
  • Introducing an additional FYA at 20% - with 100% of the expenditure then going into the Main Rate or Special Rate Pools and subject to further WDA claims; and, perhaps most controversially,
  • Permanent full expensing, which it is claimed could cost the government up to £11bn in a single year.

In my view increasing the permanent level of the AIA would help to promote certainty in business decision making; since the inception of the AIA, the limit has been set anywhere between £50k and £1m, with complicated transitional arrangements in place in periods whenever the limit has changed.

Responses are invited from businesses of all sizes, professional advisers, trade associations, representative bodies, think-tanks and research institutions; have your say here.

Scholes CA advises entrepreneurial businesses on all aspects of the UK capital allowances regime; get in touch today to discuss your requirements.


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