Ahead of the super-deduction coming to an end, the Treasury has published a policy paper requesting views on how the existing capital allowance regime could be changed to better facilitate investment. It also wants to understand how existing policy measures shape investment decisions by businesses.
Specific capital allowance changes being considered include:
- increasing the permanent level of the annual investment allowance (eg, to £500,000);
- increasing the rates of writing down allowances (WDAs) –eg, to 20% for the main pool and 8% for the special rate pool;
- introducing general first-year allowances (FYAs) for qualifying expenditure on plant and machinery (eg, a 40% FYA for main rate and 13% FYA for expenditure on special rate plant and machinery);
- introducing an additional FYA to allow both a percentage (eg, 20%) of qualifying expenditure to be claimed in the year the expenditure is incurred, together with 100% of that expenditure still being available to be pooled with WDAs claimed in the normal way; and
- introducing permanent full expensing.
In addition to this, the Treasury also outlines three broader areas of interest:
1. Investment decisions
How businesses make investment decisions and the relative importance of capital allowances in this decision-making process.
2. Super deduction
How has the super-deduction affected the investment decisions of companies ahead of it ending in 2023?
3. Existing capital allowance system
What more could the capital allowances regime do to support business investment?
This consultation was trailed in the Spring Statement. In the press release accompanying the consultation, HM Treasury indicates that, according to OECD data, companies invest just 10% of GDP each year, compared with 14% in competitor countries. It acknowledges that the UK tax system does not reward investment as much as other countries do. Clearly there is a desire to stimulate investment while ensuring that any new measures are as efficient as possible for taxpayers.
The Treasury accepts that the permanent system for capital allowances compares unfavourably to international peers. It is keen to boost the UK’s productivity by encouraging greater capital investment. The government believes that stronger growth in productivity will drive improvements in living standards and support levelling up across the UK.
Stakeholders are therefore encouraged to share their views and responses are required by 1 July 2022. ICAEW members wishing to provide input into ICAEW’s response should contact Angela Clegg.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More support on tax
ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.Sign up for TAXwireJoin the Tax Faculty
The future of tax after COVID
As digital technologies transform society, the UK government is grappling with balancing the books while ensuring its tax system is fit for purpose. Join us as we take a look at the issues and challenges facing the tax system.Read more
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.