Do We Really Need Capital Allowances?

What is the purpose of capital allowances? Are they intended to be the UK equivalent of an asset depreciation system or are they a fiscal instrument by which governments attempt to direct investment by the private sector? This article looks at a number of recent Government initiatives and tries to assess the extent to which capital allowances fulfil their intended role.

The recent consultation papers on the reform of corporation tax put forward a case for abolishing the capital allowances system and replacing it with some form of depreciation regime. If the purpose of capital allowances is to provide businesses with a form of tax relief against which they can...