Treasury Starts Conversation to Reform UK Capital Allowance Regime
A publication aiming to kickstart a conversation with businesses about how to reform the UK’s capital allowances regime was published earlier this month.
The 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.
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 Spring Statement set out some illustrations of the types of changes government could make to the current capital allowances regime. This new 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 their approach.
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