Office of Tax Simplification report on simplifying tax relief for fixed assets

Fri 22 Jun 2018

The Office of Tax Simplification (OTS) has released its report on simplifying tax relief for fixed assets and whether capital allowances should be replaced by accounting depreciation.

In broad summary they conclude that any benefits of moving to accounts depreciation do not justify the disruption and change that would arise from moving from capital allowances.  However they do suggest some simplifications:

• broadening the scope of assets qualifying for AIA (possibly financed by a reduction in the level or rate of allowance);
• the scope of CAs should be widened (to reduce the work required around the hard edge of deciding whether an item qualifies for CAs or does not qualify at all);
• a more radical reform of CAs if their scope cannot be widened; based on information derived from accounts, although not using accounts based depreciation, possibly using accounts’ asset categorisation and accounting life, but applying capital allowances to these features.

Comment

Making a change from capital allowances to accounting depreciation would inevitably involve a change in those who benefit and those who don’t, and would be impossible to implement fairly without an extended transition period. The recommendation to retain the current capital allowance system but to consider improvements and simplifications is in our view a sensible one.

It will be interesting to see whether this report, together with the economic implications of Brexit, prompt the Chancellor to consult on possible changes at the Autumn Statement.

For a further discussion on the management of tax issues connected with fixed assets, please get in touch with the Mazars corporate tax or private client teams.