Improve current rules

The Office of Tax Simplification (OTS) has published a report on replacing capital allowances with accounting depreciation. Were such a change applied, the benefit would be the removal of the separate, often complex process of determining the assets that qualify for capital allowances, which runs alongside the depreciation process in accounts preparation.

 

However, the OTS found that the benefits would not be worth the disruption. Given that only 30,000 businesses claim capital allowances in amounts exceeding the annual investment allowance, the OTS believes the focus should be on improving the current system. 

 

In particular, consideration should be given to extending the scope of assets that qualify for inclusion within the £200,000 annual investment allowance.

 

Paul Morton, OTS tax director, said: ‘The idea of using a depreciation-based system is attractive in principle and has repeatedly come up in discussions over the years, given the difficulties of the boundaries involved in the present system – not least in relation to buildings. But it seems clear from our analysis that the extent of the change that would be necessary across businesses generally would be disproportionate to the benefits available.’

 

The report, Accounting Depreciation or Capital Allowances? Simplifying Tax Relief for Tangible Fixed Assets, is on the OTS website at tinyurl.com/y8ry98ty.