Opinion Former Article

Government urged to simplify commercial premises allowance

The Chartered Institute of Taxation (CIOT) is appealing to the Government to consider simplifying its planned Structures and Buildings Allowance (SBA).
The CIOT has published its comments to HMRC on the new SBA announced by the Chancellor at Budget 2018.1 The CIOT welcomes the policy objective to encourage investment in the construction, and renovation, of structures and buildings intended for commercial use and address a gap in the current capital allowances system and improve the UK’s international competitiveness.

But the Institute thinks the current proposals for the SBA over complicate matters for taxpayers.

John Cullinane, CIOT Tax Policy Director, said:

“We urge the Government to consider whether a simpler, more streamlined approach to the SBA is possible. The policy aims could have been achieved by a simpler approach of incorporating the relief for this expenditure into the existing capital allowances available.”2

If the Government decides to press ahead with its current plans, the policy aim of incentivising investment could be achieved by giving the SBA to the person who incurs the expenditure at the proposed rate of two per cent over 50 years. This approach would remove the complexities around future use of the structure or building or those arising as a result of a future transfer of the property, in particular relating to the information required to claim the SBA.

John Cullinane said:

“There is a confusion in government thinking between, on the one hand, capital allowances as incentivising expenditure and, on the other, capital allowances as the method of giving relief for types of genuine business expenditure. This confusion leads to much of the complexity in the current proposals."3
Notes for editors

1. The CIOT’s submission can be found here.

2. Relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of two percent on a straight-line basis.

3. Although it is correct to say that the OTS (in Accounting depreciation or capital allowances? Simplifying tax reliefs for tangible fixed assets - June 2018) recommended widening the scope of capital allowances to include the expenditure on buildings that will now qualify for the SBA, it is also true that the OTS recommended reducing, or at least not increasing, the different types of expenditure and classes of assets that have to be identified for tax purposes, as distinct from the treatment of that expenditure/assets in the accounts, in order to simplify the regime overall. The SBA does the opposite by creating new categories of expenditure – separately for the structure or building, and then for any subsequent capital expenditure on it - which will have to be identified and tracked for tax purposes.

4. Expenses you incur in your business can either be revenue (trading) expenses or capital expenditure. Normally if an item will have a lasting benefit for the business, certainly longer than a year, it will be a capital expenditure. Capital allowances are a way of obtaining tax relief on some types of capital expenditure. They are treated as another business expense and so reduce your taxable profit. They are given by reference to periods of account. Not all capital expenditure qualifies for capital allowances.

5. The Chartered Institute of Taxation (CIOT)

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.

The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.

The CIOT’s 18,500 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk

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