Having concluded that the Capital Allowances legislation should remain the OTS made some recommendations for future consideration.
The report also produced some interesting facts about the companies that do claim, and the amounts, that could focus the future shape of the legislation and what it is trying to achieve.
The majority of businesses do not claim Capital Allowances; according to HMRC 564,000 corporate companies claim under £200,000 annually, with 18,000 occasionally over £200,000 and only 8,000 with a capex consistently over the Annual Investment Allowance of £200,000.
The Annual Investment Allowances (AIA) is certainly a useful investment relief for small businesses with the first £200,000 of expenditure being able to written down immediately although there remains the question of does it qualify or not.
A consideration proposed by the OTS it to widen the AIA and simplify it by allow for all assets acquired for the business (excluding land and dwellings), such as cars. It is forecast that the cost to the exchequer would be £2.65bn. The OTS recommends maintaining the limit of £200,000.
Another proposal recommended by the OTS to simplify the Capital Allowances legislation is widening the scope, calling it Full Scope Capital Allowances, where all assets used in a business will qualify, with the introduction of a 2% rate against those items that normally don’t qualify and a reduction in the writing down allowances from 18% to 16% and a reduction of the special rate pool from 8% to 7%.
Whilst it this additional pool of allowances will help certain businesses it is difficult to comprehend how this will simplify the system; on the contrary it just adds another layer of analysis.
There is no straightforward way to simplify the Capital Allowances legislation but the OTS still recommended retaining the Capital Allowances system as opposed to replacing it with a depreciation based system.
We have no doubt there will be further change once the proposals have been considered in further detail, but most respondents, as did we, made comment that the continual change is not helpful to business.