Tax reform must not short-change businesses

TAX: E3 Consulting managing director Alun Oliver has urged the government to cut red tape in capital allowances

TAX: E3 Consulting managing director Alun Oliver has urged the government to cut red tape in capital allowances

Property tax specialists are urging the government to ‘keep it simple’ ahead of consultation on a proposed shake-up of investment allowances this summer.

E3 Consulting has called for a reduction in red tape and warned that businesses must be given time to adjust to any changes.

It comes as HM Treasury is due to open a consultation about changes to capital allowances – tax reliefs available to firms and individuals investing money in a business.

Chancellor, Rishi Sunak, has now launched a review (MAY 9) with responses required by July 1 before final plans are due to be announced in the Autumn Budget.

In addition to reforms to boost investment, the Government is seeking to understand the decision-making process and impact tax reliefs and similar fiscal incentives have on investment choices that businesses face.

E3 Consulting – founded in 2003 with offices in Bournemouth, Southampton and London – specialises in property related taxes, such as Capital Allowances, Community Infrastructure Levy (CIL) and Land Remediation Tax Relief.

Managing director Alun Oliver and property tax surveyor Todd Arnison flagged up the imminent consultation in E3’s latest webinar, which focused on capital allowances in property and real estate purchases.

Alun said afterwards: “The tax system is already mightily complicated for some businesses.

“It is encouraging to see the Chancellor consider improvements but tax reform has a chequered history and he must ensure any new initiatives are not counter-productive.

“If he really wants to modify behaviour and encourage businesses and individuals to invest, he needs to give them enough time to get to grips with any new measures.

“For example, the 130% super-deduction capital allowance is a super complicated relief which is due to end in March of next year, just two years after it was introduced. It will have gone by in a flash.

“With tax legislation being built up in layers over many years, and by all sides of party politics, there is plenty of scope for clarification, rationalisation and enhanced realistic timescales of up to ten years in these reforms to encourage greater utilisation of the available reliefs to achieve the boost in investment and economic prosperity that the government wishes to see.”

Alun added: “Mr Sunak needs to think carefully about how to encourage the greatest investment across the business spectrum from SMEs to PLCs in the most effective way.

“E3 Consulting is now reviewing the consultation document and will be making representations in due course.”

Under the capital allowances system, businesses can write off up to 100% of their costs of qualifying expenditure over time in different ways, saving tax and boosting return on investment and cashflow.

The Chancellor’s Spring Statement document floated several potential reforms which have now been included in the consultation document. They include:

* Increasing the permanent level of the Annual Investment Allowance to £500,000. The existing, temporary £1m allowance is due to revert to £200,000 in April 2023.

* Increasing Writing Down Allowances from 6% to 8% for special rate assets and 18% to 20% for main rate assets.

* Introducing a First Year Allowance for main and special rate assets to allow greater deductions in the first 12 months – for example at 40% and 13%.

* Full expensing to allow businesses to write off the costs of qualifying expenditure in one go.

E3 Consulting’s latest webinar ‘Commercial property purchases – is tax relief on your radar?’  explained how failing to manage capital allowances before a sale completes could result in any tax relief being lost for an unsuspecting buyer.

Alun said: “The webinar provided a timely reminder that it is absolutely essential for a purchaser to understand the capital allowances position from the outset of a transaction.

“It is important that they are dealt with as part of the heads of terms and clearly covered by the CPSEs (Commercial Property Standard Enquiries) with obligations put into the contract.

“Since New Fixtures Rules came fully into effect in April 2014, the absence of requirements being met means the default position is zero tax relief for the purchaser.”

Watch the video of the webinar here.

For more information about capital allowances, any wider property tax matters or to share feedback on the consultation, please contact E3 Consulting on 0345 230 6450 and/or for an initial, complimentary, no-obligation discussion.