Corporate Tax Roadmap: Capital Allowances simplification
The Corporate Tax Roadmap commits to providing greater clarity on what qualifies for different capital allowances, simplifying capital allowances legislation, and addressing the tax treatment of predevelopment costs.
Capital allowances are crucial to the government’s mission to boost economic growth.
Recent years have seen significant instability and unpredictability, with temporary measures and changes to the Annual Investment Allowance. This government will prioritise providing stability and certainty in this area, maintaining the generous system for capital allowances that is currently in place for the duration of this parliament.
The government will seek to work closely with stakeholders to further explore three core areas.
1. Clarity on what qualifies for different capital allowances.
The government will provide businesses with greater clarity on what qualifies for capital allowances to help make investment decisions. HMRC has already issued guidance changes following discussions with industry and tax experts on common areas of uncertainty, such as the treatment of computer software and the interaction between the annual investment allowance and full expensing.
2. Simplification.
The government appreciates contributions to the existing full expensing simplification industry working group, and responses to the technical consultation. With legislation to make full expensing permanent is already in place, the government will proceed with this work at a slower pace over this parliament. This exercise aims to consolidate and simplify the Capital Allowances Act 2001, making system more straightforward for organisations without materially changing eligible expenditures or the claiming process.
3. Predevelopment costs.
The government acknowledges business concerns regarding predevelopment costs, following the Gunfleet Sands Ltd and others vs. HMRC (2023) decision. The government will explore this carefully with affected stakeholders through a consultation to be launched in the coming months, to help inform the government’s next steps and potential options.
A core pillar of the government’s growth mission is to encourage investment in renewable energy and major infrastructure projects. The government is keen to understand the impact of the tax rules on the costs of such investments.
Next steps
Crowe eagerly awaits further consultation details and is well placed to support organisations with solutions around simplification and additional guidance.
For UK organisations, generous capital allowances can influence investment decisions by reducing the cost of capital. The Corporate Tax Roadmap announcements to provide guidance and simplify the capital allowances will assist the short and long term decision making process.
