The Office of Tax Simplification (OTS) published a paper calling for evidence as part of its review of capital allowances (CAs) and depreciation.

The project related to tangible fixed assets only and focused 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. At a basic level, it would no longer be necessary to allocate assets to various computational pools for CAs, instead the treatment of assets required for preparation of the accounts would flow through to the tax return.

The consultation closed on 30 November 2017.

In summer 2018 OTS published Accounting depreciation or capital allowances? Simplifying tax relief for tangible fixed assets.

Summary Conclusions

Replacing CAs with depreciation would be a radical change. It could be done and this report describes how. It is not clear that it should be done. The longterm benefits it would deliver would not be enough to make the disruption worthwhile. However, nothing in this review has made the structure of the CA
regime seem simple. It is complicated and at times unfair as between different businesses. The only benefit of the way that tax relief is currently given is that it exists already and some people are familiar with it. The CA system should be improved. Ways of achieving this are set out in this report. Some can happen quickly, others will take longer to implement.