During the Spring Statement, the Chancellor announced a review of tax reliefs, including the capital allowances system, to better support businesses and investment in the UK. Since March, and ahead of the Autumn Budget later this year, the Treasury has been engaging with stakeholders and businesses to consult on potential options for reform of these systems.
Capital allowances are tax reliefs that allow businesses to deduct qualifying expenditure when they invest in certain assets like equipment, machinery and business vehicles known as ‘plant and machinery’. There are many types of capital allowances including the super-deduction, annual investment allowance and first year allowance.
As an accredited Chamber of Commerce, Chambers Wales South East, South West and Mid collaborates regularly with the UK and Welsh governments to ensure that the voices of members, partners and businesses in Wales are heard. To do this, the Chamber contributes to consultations, round tables and direct conversations, influencing policy and enabling businesses to be a part of the discussion.
When a specialist voice is needed to inform decisions, the Chamber calls upon members and Welsh businesses with valuable sector-specific expertise to represent them.
For the Treasury’s consultation on capital allowance, the Chamber asked Matthew Denney, Tax Partner at Bevan Buckland LLP, to contribute. Chamber member Bevan Buckland LLP is one of the biggest accountancy practices in Wales with five offices across South and West Wales, with tax advice for businesses among its most sought-after services.
Topics discussed which will feed into the reforms for the Autumn Budget included:
- Investment – This is currently limited, hence the need to reform the system to encourage investment. Evidence suggests investment is limited due to cash requirements and increases in other costs such as labour, materials and energy. However, due to the lack of labour, there have been examples of investment in automation within manufacturing.
- Simplicity – Not understanding exactly what capital allowances are (and when they can be applied) can be a barrier for smaller businesses. The super-deduction is not necessarily understood by businesses, while multiple rates and frequent changes to the annual investment allowance can be confusing.
- Certainty – In a volatile economic climate, businesses crave certainty. Some capital allowances such as the annual investment allowance are often announced as temporary and then extended, while other capital expenditure is planned over a number of years dependent on cash flow. A clear structure and timeframe for claiming capital allowances would be more beneficial for businesses.
- Which options wouldn’t work – It is generally accepted that full expensing, a costly measure which would allow all qualifying expenditure to be written off in the year it is incurred, would be an unrealistic option. This is owed to businesses having less spare capital than normal to afford such measures in the current economic climate.
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