The OTS project relates to tangible fixed assets only and will focus on whether the use of accounts depreciation to provide relief for capital expenditure instead of capital allowances would simplify the preparation of tax returns for incorporated and unincorporated business.

The consultation calls for comment on 16 questions ranging from transition costs for companies swapping use of various reliefs to whether the use of accounts depreciation would make preparation of the tax return simpler or more complex.  

It also considers whether changes to the current timing incentives for capital expenditure, such as the annual investment allowance (which accelerates tax relief), would be an improvement on the current system.

It accepts that assuming that a timing incentive remains in place there would need to be a means of preventing a double deduction (for depreciation and the allowance). The OTS is calling for feedback on whether this would significantly compromise any potential simplification benefits of a depreciation based approach.

An initial review by OTS found that a major source of this complexity is the uncertainty around the ‘boundaries’, for example, working out whether an asset qualified or not, or which writing down rate should be applied.

The work will need to set out who might be better off or worse off (‘gainers and losers’), including ways in which such a change could be made revenue-neutral, and the benefits and challenges involved including implementation and transitional issues. It will also take into account options for different businesses defined by size and sector.

Last month the OTS released an initial scoping document to set parameters for the review.

The closing date for comment is 30 November 2017.

To arrange a meeting or submit a response, email: [email protected]

OTS tax relief for tangible fixed assets using accounts depreciation – call for evidence

Report by Sara White