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A technical note has been published, including draft legislation, on the planned changes to the existing capital allowances regime.

The Government announced a major package of reforms to the business tax system in the 2007 Budget, with the aim of enhancing the international competitiveness of the UK, by encouraging investment, promoting innovation and ensuring fairness across the tax system.

The package included reforms to deliver a simpler, two-rate system of capital allowances, to ensure the tax system better reflects the economic depreciation of capital assets. The package also included the introduction of a new annual investment allowance of £50,000 for all businesses, to promote investment particularly by smaller firms. According to research, this will allow 95 per cent of businesses to write off all of their investment (excluding expenditure on cars) in the year in which it is made.

In July, the Government published Business tax reform: capital allowances changes, a consultation on the Government’s proposals for the key design features of the new annual investment allowance, new rules on integral building features and the transitional rules for the move to the new rates of capital allowances.

A technical note has now been published, including draft legislation, on these changes. The Government estimates that the administrative burden of the capital allowances system on business under the new capital allowances regime will be reduced by £15 million.

The technical note announces the Government’s intention to extend the provision that allows capital allowances to be claimed on thermal insulation added to existing industrial buildings to all commercial buildings, at a rate of 10 per cent, in line with the Government’s approach to environmentally beneficial features integral to buildings.

The Government also intends to withdraw the special industrial buildings allowances available in Enterprise Zones (EZAs) from April 2011, to coincide with the withdrawal of industrial buildings allowance. The Government considers that these allowances have now served their purpose, and that there is no case for retaining them. No business that has already claimed EZAs will be affected by this.

Link

HMRC: Written Ministerial Statement: capital allowances changes