Capital allowances – time to put in place a regime that will last

The Chartered Institute of Taxation has welcomed today’s announcement by the Chancellor that the Government is considering how to best support future business investment, once the super-deduction disappears in 2023. But the Institute says whatever regime the government puts in place should be there for the long-term, to enable businesses to plan effectively.

The Government’s Tax Plan, published today, states:

“We’re going to cut and reform taxes on business investment. We want to build on the momentum of the super-deduction to drive business investment. The challenge now is to find the most effective way to cut taxes on investment while ensuring value for the taxpayer. We will engage with businesses and confirm plans at the Budget later this year.”

Commenting, Adrian Rudd, Chair of the CIOT’s Corporate Taxes Committee, said:

“Half a cheer for the Chancellor’s tax plan. We’ve been encouraging the Government to set out clear guiding principles and priorities for tax policy since the Better Budgets report¹ in 2017. It’s welcome that it provides an indicator of direction of travel, though the contents are highly selective – no-one would mistake it for an impartial setting out of the Government’s tax agenda.

“It is welcome that the Government are approaching the question of tax incentives for business investment with an open mind. It is important that the promised engagement over the summer is a full consultation and that the Government will work proactively to reach all parts of the business community, large and small, to gather views.

“The new regime, when it comes, must be one for the long-term. Business investments often take place over decades. Businesses need consistency levels of relief to help them plan. We need to move away from temporary levels of annual investment allowance to a permanent high level, and away from short term measures like the current super-deduction to a stable investment regime.

“In our view there has been too much tinkering with rules and rates of capital allowances, and that frequent changes more often than not bring complexity and uncertainty, as well as some arbitrary cliff edges. Constant changes to the rules undermine investor understanding of, and confidence in, what is on offer at any one time.

“The tax plan also focusses on the UK’s R&D tax relief. As noted, this has been under consultation since Budget 2021. We are pleased that the Spring Statement makes changes to the announcements made in Autumn 2021 around including data and cloud computing costs and a focus on R&D activities in the UK.  These changes show that the Government has listened to what business has said about those changes and the increased flexibility and scope announced today is welcome. We look forward to further consultation in this area.”