CIOT warns Finance Bill tweaks damage confidence

CIOT has warned that a number of minor changes to Finance Bill 2018-19 (FB 2018-19) risk undermining the consistency depended on by taxpayers, reducing confidence and affecting international competitiveness

FB 2018-19 is currently making its way through parliament and is subject to amendments until it is ratified. The institute says that surprise changes without public consultation are creating uncertainty and disruption for taxpayers, especially as some of the legislation is not finalised, meaning that often ‘it is unclear exactly how the measure will operate and who it will affect’.

John Cullinane, CIOT tax policy director, notes the frequent changes to the annual investment allowance (AIA) and the disruption this has caused many businesses. ‘In just over ten years, the level of the allowance has changed five times, to amounts ranging from £25,000 to £500,000. It is currently £200,000; being set at this supposedly ‘permanent’ level in the Summer Budget 2015.

‘Budget 2018 saw a time-limited increase in the allowance to £1m, from 1 January 2019 to 31 December 2020, after which it is suggested it will revert to its current level of £200,000. Affected businesses making long-term plans will just have to guess what the government will really decide for periods beyond that, or indeed, on past form, what further changes might be made before that time expires.

‘The right level for AIA is a matter of political judgment but it is damaging if it is repeatedly altered, and it can be complex where a business’s accounting period spans changes in the AIA. This can result in a lower amount of AIA being available than expected.

‘The unrepresented or ill-advised taxpayer may fall foul of these complexities. It would be greatly preferable if the Chancellor were able to give greater longer-term stability to its level.’

He also pointed out the reduction of capital allowances for qualifying machinery, from 8% to 6%. The new rate will still give tax relief for investments in pants and machinery, but over a longer period of time. This change is intended to finance the Structures and Buildings Allowance.

According to Cullinane, ‘It is particularly regrettable that this proposal seems to introduce relief only on the basis of yet another costly exercise of asset classification required only for tax purposes; something cautioned against by the Office of Tax Simplification (OTS) in its evidence-based review of capital allowances.

‘Initial blue-skies consultation is part of the government’s stated framework for tax changes, but it is all too frequently skipped over, to the detriment of effective tax policy making.

‘This was one of the themes of the Better Budgets report published last year by CIOT, the Institute for Fiscal Studies (IFS) and the Institute for Government.’

Report by James Bunney


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