Structures and buildings capital allowance ‘too complex’

The government should consider simplifying its planned structures and buildings allowance (SBA) designed to encourage investment in the construction and renovation of commercial buildings, as the current proposals are too complex, CIOT has said

As outlined at Budget 2018, relief will be provided on eligible construction costs incurred on or after 29 October 2018, at an annual rate of 2% on a straight-line basis, and is intended to address a gap in the current capital allowances system.

However, in its response to HMRC’s technical note, CIOT points out that while a report from the Office of Tax Simplification (OTS) recommended widening the scope of capital allowances to include the expenditure on buildings that will now qualify for the SBA, it also 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.

CIOT argues 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.

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.’

CIOT says that 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 2% 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. 

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.’

Capital allowances for structures and buildings Response by CIOT is here.

Report by Pat Sweet

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