Office of Tax Simplification consults on radical capital allowances reform

Uncertainty regarding the scope of capital allowances rules that occupy 500 pages of UK tax legislation is a major source of complexity, the Office of Tax Simplification (OTS) said as it issued a call for evidence on tax relief for the cost of tangible business assets.

Capital allowances were flagged as an area of complexity in “almost every meeting” the OTS held with businesses and advisers in its recent review of issues relating to the corporation tax computation. The OTS is now examining whether the use of accounts depreciation to provide tax relief for capital expenditure on tangible assets would simplify tax return preparation for both incorporated and unincorporated businesses …

The OTS noted that the current capital allowances regime has timing incentives for capital expenditure, such as the annual investment allowance that accelerates tax relief … Stephen Herring, head of taxation at the Institute of Directors, told Tax Analysts that the annual investment allowance enables entrepreneurial companies to “accelerate capital investment and improve their productivity which, quite rightly, the government has set as a priority.” Tax simplification is needed, he said, but “not at the price of having an uncompetitive economy.” Read more:

My news story for Tax Analysts, October 4 (paywall)