The draft Capital Allowances (Structures and Buildings Allowances) Regulations 2019, which were laid before Parliament on 17 June, were approved after a short debate on the floor of the House of Commons this week. Labour did not vote against the measure, preferring to wait to scrutinise the guidance when HMRC publishes it later this year.
The Government recognise the importance of providing tax reliefs for genuine business costs, said Financial Secretary to the Treasury Jesse Norman, highlighting that the UK is currently the only G7 economy that offers no capital allowances on investments in structures and buildings. Norman claimed the vast majority of stakeholders welcomed the structures and buildings allowance.
Shadow Chief Secretary to the Treasury Peter Dowd (Lab) is concerned at the introduction of ‘another corporate relief when so little has been done to sort out the scope of the scores of tax reliefs already in operation’. Dowd observed that ‘the Chartered Institute of Taxation and the Institute for Fiscal Studies had a debate about business tax reliefs, which asked whether they were ‘corporate welfare or essential elements of the tax system’. At the last count, the government were responsible for managing 115 principal tax reliefs totalling £430 billion, as well as 80 minor tax reliefs totalling an estimated £690 million, he said, adding ‘alongside those, there are up to 235 reliefs in operation for which we have no cost data at all’. The Labour spokesman went on complain the Treasury have given no consideration to how this measure will fit into the already complex and convoluted system of capital allowances, there is no ‘review mechanisms’ of these reliefs, and they do not have any sunset clauses on them. On the SI, he said it remains vague, with important definitions that would assist in addressing areas of ambiguity delayed and deferred to guidance.
The MP quoted CIOT’s statement at the time of the 2018 Budget that: “It is neither sensible nor responsible for the Government to introduce reliefs into the tax system at a time before they have consulted upon the scope and application of the relief or fully considered, and are therefore able to legislate for, the details of the relief.” He said the CIOT concluded that these regulations will only complicate matters, particularly given that plant and machinery are excluded. That means that taxpayers are still required to identify the plant and machinery in buildings, with the same grey area that currently exists between buildings, fixtures, plant and machinery. The administration of this new allowance will be substantial and burdensome for businesses, flying in the face of the Government’s initial promise to simplify the tax system, he concluded.
Jesse Norman told Dowd that many of the reliefs the Labour MP described are negligible and therefore should not necessarily be the target of extensive review. The independent Office for Budget Responsibility has estimated that the capital allowances package announced at the Budget would increase business investment by 0.4 per cent, so that number has been calculated, he said.
SNP economic spokesperson Kirsty Blackman thanked the Association of Taxation Technicians and the CIOT, for their comments on the regulations. Blackman complained that the measure increases the number of classes of assets that have to be identified purely for tax purposes, which directly contradicts an OTS recommendation. She is disappointed that MPs are considering these regulations in July, without the publication of the guidance. The MP cannot understand how the government can tell us that this tax relief will have a positive economic benefit if they cannot even tell us which types and numbers of businesses are likely to claim it.
On the point made by the OTS (which said that the tax system should look to reduce, or at least not increase, the different types of expenditure in classes of assets that have to be identified solely for tax purposes), Jesse Norman told Blackman: “The difficulty with the suggestion it has made is that, if the boundary were removed between buildings that get relief at two per cent and plant, fixtures and so on that get relief at six per cent, the result would have to be a combined rate of relief somewhere in-between. The effect for many businesses with long-term investments in plant would be that they lost out through reduced relief or delayed relief if the rate went down. There would be a significant number of losers and a negative impact on business investment, when we are trying to have the exact opposite effect.”
The regulations were passed without a vote.
The full debate can be found here.