31 May 2022

Capital allowances: Are changes on the horizon?


Tax Reliefs (including R&D)

Following on from the Chancellor’s tax plan which was announced earlier this year, HMRC opened a consultation on capital allowances in early May. The consultation asks businesses, experts and individuals alike for their opinion on the regime and how it could be reformed to incentivise growth within the UK.

Even though the government haven’t given much doesn’t give much insight into any definitive plans for the future, it could mark the first step towards upcoming change.

So, with potential changes on the horizon, and with the 130% super deduction drawing to a close next year, now could be the perfect opportunity to take advantage of the relief.

What is the focus of the consultation?

When comparing our capital allowances regime to international peers, our system falls short. As a result, the government wants to get an oversight of how the regime can do more to support business investment.

In addition, they are looking to find out how/if capital allowances play a role when it comes to business investment, and how the super deduction has affected the decision-making process too.

What changes could we see?

The consultation closes on July 1st, meaning that we’re unlikely to hear of any changes before this year’s Autumn Budget. Even though nothing is set in stone, some of the options which the government have said that they are considering include:

  • The annual investment allowance (AIA) threshold – The AIA limit has varied over the last 14 years, and is currently set at £1m until March 2023. After this deadline the rate will return to the £200,000 threshold. The government have suggested permanently increasing the threshold, but haven’t yet specified what the limit would be.
  • Changes to writing down allowances (WDA) rates – We could see the introduction of permanent first year allowances and previous rates of WDA for both the main and special rate pools being reinstated, perhaps to 25% and 10% respectively.

  • Implementing a full expensing regime – The measure would give 100% relief upfront, allowing qualifying expenditure to be written off in the year in which it’s incurred, with no cap. A hybrid, less costly measure might allow a 100% first year allowance for main pool expenditure plus a 50% first year allowance for special rate pool expenditure.

The UK would be the only country in the G7 to operate such a regime, making capital allowances far more favourable. But it would be the most costly option to introduce, and with such a significant tax benefit on offer, careful consideration needs to be given in order to ensure that abuse of the scheme is avoided at all costs.

The value of finding the right advisor

Capital allowances have never been more generous, but they’ve also never been more complicated. And with potential changes to come, it’s more important than ever to ensure that you’re consulting an expert on the matter, to ensure you’re maximsing the value of your claim.

Whilst most advisors and accountants will be aware of capital allowances in some capacity, it takes a multi-disciplinary skillset to be able to unlock the true value of a claim.

Our team has specialist in-house chartered surveying and tax expertise, meaning that we can identify costs that may have previously gone unnoticed.