Chartered Institute of Taxation says stability in investment reliefs is key
The Chartered Institute of Taxation (CIOT) is calling for more stability and certainty in the capital allowances regime, saying these are more important to businesses than any particular rate of relief in encouraging them to invest in new equipment, machinery or business vehicles.
The views are set out in CIOT’s response to a government consultation on potential reforms to the UK’s capital allowance regime announced in the 2022 Spring Statement.
Adrian Rudd, Chair of CIOT’s Corporate Taxes Committee, said:
“We need an end to the chopping and changing of reliefs for business investment. This will bring stability to the tax system and provide a sustainably supportive treatment of business capital investment for business income and corporation tax purposes.
“There is consensus across the political spectrum, including both Conservative leadership contenders, that the key to the UK’s economic future is generating growth, and that creating the right conditions for businesses to invest is central to delivering that growth.
“The overwhelming feedback that we have received from business and their tax advisers is that, when making investment decisions, stability and certainty are more important to them than the particular rate of relief.
“We encourage the Government to consider their longer-term strategy in relation to business investment and capital allowances. This review should include a wider, more strategic consideration around which businesses and what investment by those businesses it wishes to encourage. The resulting changes should have clear policy aims around what is incentivised.
“A wider review also provides an opportunity for the Government to ensure that capital allowances are given to assets and expenditure that will achieve the Government’s broader policies, such as levelling up, reduction in CO2 and energy efficiency (net zero), promoting innovation and high tech (high productivity) R&D industries, or improved and increased house building.”
On what will help businesses, the CIOT suggests the Government considers the following:
- Re-setting a permanent level of the Annual Investment Allowance (AIA) at an appropriate level to simplify the tax and capital allowances computations of businesses within its limits.
- Broadening the expenditure that qualifies for the AIA to provide further simplification for smaller businesses.
- Simplifying the capital allowances regime more generally, as this will be at least as attractive, if not more so, than higher tax incentives and reliefs.
- Ensuring changes are made for the medium to long term to generate business confidence.
Adrian Rudd added:
“The Government could also consider other tools to make the capital allowances regime more attractive and better incentivise companies to purchase, upgrade, or extend the life of an asset.
“For example, the Government could consider introducing some form of ‘above the line relief’, upfront grants or subsidies for particular types of expenditure and an ability for loss making companies to surrender allowances for a payable tax credit, similar to the SME R&D tax relief scheme”
On whether a full expensing is a worthwhile potential policy, Adrian Rudd said:
“Full expensing would undoubtedly be costly to the Exchequer, but it is an interesting proposition to consider. We do not know whether this option would have the effect of incentivising investment to any great extent. It also lacks the ability to target incentivisation at investment in line with the Government’s overall policy objectives.”
