Capital allowances to be reformed?

The government has launched a new call for evidence to gather views on capital allowances reform. If you want to respond, you should do so by 1 July. Any decisions are then likely to be announced at this year’s Autumn Budget. So, what are the suggestions being looked at? Here’s a brief summary:

• A permanent increase in the annual investment allowance.
• Increasing the rates of writing down allowances - the rates suggested in the policy paper are 20% and 8% for the main pool and special rate pool respectively.
• An additional first year allowance (FYA) to boost relief. For example, if a new machine is purchased for £10,000, the additional FYA could give tax relief of 20% (£2,000) in the first year. The full £10,000 would then be written down at the main rate over the life of the machine.
• Another option is to introduce full expensing of main rate plant and machinery and a 50% FYA for special rate plant and machinery. There would be no limit on the amount claimed each year.

If the last option is chosen, it would require a radical overhaul of the current system. But it would make little difference to smaller businesses, as they can usually claim 100% relief using the annual investment allowance anyway.