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Treasury ‘kickstarts a conversion’ on reforming capital allowances

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The Treasury has issued a publication Potential reforms to UK’s capital allowance regime – inviting views aiming to ‘kickstart a conversation’ with businesses on reforming the UK’s capital allowances regime.

The 2022 Spring Statement set out a number of illustrations of the types of changes government could make to the current capital allowances regime. The government is considering options ahead of the Autumn Budget and as part of this is continuing to review the latest evidence, including the impact of the super deduction, and the views of businesses.

The publication provides further detail on the types of changes, areas of interest, and how to respond, with responses requested by 1 July 2022.

The government would welcome views on the options set out at Spring Statement, including:

  • increasing the permanent level of the annual investment allowance;
  • increasing the rates of writing-down allowances;
  • introducing general first-year allowances (FYAs) for qualifying expenditure on plant and machinery;
  • introducing an additional FYA; and
  • introducing permanent full expensing.

In addition to the options above, the publication highlights three further areas of interest:

  • Investment decisions: the government would welcome evidence from stakeholders on how firms make investment decisions, the relative importance of capital allowances in those decisions, and how they are taken into account.
  • The super-deduction: the government wants to incorporate the latest evidence on the impact of the super-deduction into its decision making.
  • The current system of capital allowances: the government acknowledges that the generosity of the permanent system of capital allowances compares unfavourably to international peers and wants to know what more the capital allowances regime could do to support business investment.


Suzanne Alcock, managing director at FTI Consulting, said the consultation was welcome and necessary if the government is to achieve its objectives of encouraging higher levels of private sector investment by UK businesses. ‘The recent introduction of the 130% super-deduction and 50% special rate allowance has no doubt been beneficial to some companies in a position to utilise the relief,’ she said. ‘However, there are many businesses for whom this has not been immediately helpful, such as, those making losses and cannot use the additional and accelerated reliefs.

‘To understand the instant and long-term impact of the options, a modelling exercise should be undertaken to identify which options could add the most value in line with the business model and make a difference to investment decisions,’ Alcock advised. ‘This may not be a straight forward exercise as there are many factors that could influence the outcome.

‘It is positive that government wishes to understand the part that capital allowances plays when businesses make investment decisions. Stakeholders should look to take this opportunity to help government shape the legislation so that it can maximise the benefits sought and increase investment into the UK,’ she added.

Issue: 1575
Categories: News