The ATT urges the UK government to consider not only how to incentivise greater capital investment by larger businesses, but also how the capital allowances rules can be ‘simplified and made more coherent’ for smaller businesses.
Capital allowances affect a wide range of businesses, from sole traders to multinationals, and any reforms must avoid a ‘one size fits all’ approach, to ensure continued investment and growth in the UK.
For smaller businesses, investment decisions are dictated by commercial needs rather than by capital allowances and so the availability of a specific capital allowance is unlikely to incentivise investment. However, where a smaller business decides to invest and has the choice between assets which attract different reliefs, the availability of capital allowances may be influential.
Simplification of the current capital allowances regime is a key issue for smaller businesses. Reforms to the timing and level of reliefs will have little or no impact on smaller businesses which do not spend above the annual investment allowance.
Setting and sticking to an appropriate annual investment allowance limit would provide welcome certainty for all businesses, rather than making repeated (sometimes last-minute) changes – avoiding potential complexity where an accounting period straddles the date of change.
The super-deduction has introduced further complexity and has ‘not had a particularly marked impact on investment making decisions’. The ATT notes that the late announcement of the super-deduction meant that larger businesses would already have taken investment decisions and so the relief would have operated more as an unexpected benefit, rather than as a ‘driver of decisions’. Similarly, the introduction of any additional first-year allowances may not drive significant investment unless they are given permanent effect and extended to both companies and unincorporated businesses.
Although not included in the consultation, the ATT also recommends the government consider whether additional FYAs could be converted into payable tax credits for loss-making companies.
The ATT urges the UK government to consider not only how to incentivise greater capital investment by larger businesses, but also how the capital allowances rules can be ‘simplified and made more coherent’ for smaller businesses.
Capital allowances affect a wide range of businesses, from sole traders to multinationals, and any reforms must avoid a ‘one size fits all’ approach, to ensure continued investment and growth in the UK.
For smaller businesses, investment decisions are dictated by commercial needs rather than by capital allowances and so the availability of a specific capital allowance is unlikely to incentivise investment. However, where a smaller business decides to invest and has the choice between assets which attract different reliefs, the availability of capital allowances may be influential.
Simplification of the current capital allowances regime is a key issue for smaller businesses. Reforms to the timing and level of reliefs will have little or no impact on smaller businesses which do not spend above the annual investment allowance.
Setting and sticking to an appropriate annual investment allowance limit would provide welcome certainty for all businesses, rather than making repeated (sometimes last-minute) changes – avoiding potential complexity where an accounting period straddles the date of change.
The super-deduction has introduced further complexity and has ‘not had a particularly marked impact on investment making decisions’. The ATT notes that the late announcement of the super-deduction meant that larger businesses would already have taken investment decisions and so the relief would have operated more as an unexpected benefit, rather than as a ‘driver of decisions’. Similarly, the introduction of any additional first-year allowances may not drive significant investment unless they are given permanent effect and extended to both companies and unincorporated businesses.
Although not included in the consultation, the ATT also recommends the government consider whether additional FYAs could be converted into payable tax credits for loss-making companies.
