News added on 28.06.2018

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Capital allowances

OTS report finds that replacing capital allowances regime is not worth it

The Office of Tax Simplification (OTS) has published a report that considers whether capital allowances should be replaced with accounting depreciation. What did it conclude?

Background. The OTS has published a report on the viability of replacing the complex capital allowances system with accounts depreciation to give tax relief on tangible fixed assets. The review was requested by the Chancellor in response to one of the main recommendations in the OTS’s July 2017 report on the simplification of the corporation tax computation. However, as part of the review the OTS considered the position in relation to unincorporated businesses as well as companies.

Conclusions. The report concludes that if a system were being devised from scratch, depreciation could work well and would make sense. The reality is that only around 30,000 businesses claim capital allowances in excess of the current annual investment allowance (AIA) of £200,000 and so the potential benefits are not worth the upheaval involved. There is no doubt that the capital allowances regime is complicated and at times unfair, however the OTS deemed such a move to be a radical change. It would involve a lengthy transitional period, process changes for all businesses (even those that would not be impacted), and a big price tag.

Recommendations. The report recommends that a number of changes to the existing regime should be considered, in particular to extend the scope of assets which qualify for the AIA.

The full report can be found here: https://tinyurl.com/ycovh45m.

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