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Spring Statement: Chancellor announces review of capital allowances regime

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Published: 23 Mar 2022 Update History

In his Spring Statement, the Chancellor Rishi Sunak announced a review of the capital allowances system in advance of the Autumn Budget. Several potential options for reform are being considered and will be discussed with businesses and other interested parties.

The government is keen to encourage the private sector to invest in capital assets to enhance productivity growth over the coming few years.

The 130% super deduction introduced at Spring Budget 2021 is due to expire on 31 March 2023. Various potential options to enhance the capital allowances regime from April 2023 are being considered. The government notes that despite the UK’s relatively competitive headline corporation tax rate, incentives for capital investment are less generous than the OECD average and is seeking to address this.

It is clear from the Spring Statement document that the government will be looking to strike an appropriate balance between simplicity, generosity and impact on investment. Priority will be given to measures that expect to have the biggest impact in driving growth. A combination of these may be adopted.

Some of the potential options being considered in respect of expenditure on plant and machinery are summarised below, from least generous to most generous.

  • A permanent increase in the default level of the annual investment allowance. The existing £1m annual amount is due to revert back to the default of £200,000 from April 2023. This permanent amount could be increased to £500,000, for example. This was the enhanced rate set between April 2014 and 31 December 2015.
  • An increase in the writing down allowances (WDAs) for the main rate and special rate pools from 18% and 6% to 20% and 8% respectively. This would essentially be winding the clock back as the main rate pool WDA was 20% before April 2012 and the special rate pool WDA was 8% before April 2019.
  • A first-year allowance regime where businesses are able to claim a large up-front WDA and then write off the remaining amount through capital allowances pools over time. The Spring Statement suggests a 40% upfront allowance applicable to main rate pool assets and 13% for special rate pool assets. This is similar to the 40% first year allowances that were available to small and medium-sized enterprises until April 2008.
  • An additional upfront allowance of 20% on the cost of qualifying expenditure, with a further 100% relief given over time through writing down allowances. This would be a brand-new initiative, although there are other forms of expenditure, such as on clearing contaminated land, that benefit from relief on excess of 100% of the value of qualifying expenditure.
  • A full expense regime, such that 100% upfront relief would be given for all forms of qualifying capital expenditure. This should mean that all existing capital allowances regimes relating to plant and machinery could be repealed. No other G7 member has implemented this on a permanent basis.

The Spring Statement document notes that changes could also be made to the structures and buildings allowance, or new reliefs could be introduced, targeted at specific investments (such as the enhanced capital allowances regime within designated Freeport areas).

Spring Statement

On 23 March 2022, the Chancellor delivered his Spring Statement. Read ICAEW's analysis and reaction.

Read ICAEW's analysis and reaction on the 23 March 2022 Spring Statement.
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