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Government closes capital allowances loophole
The Government has brought forward the closure of a loophole which allowed businesses to accelerate capital allowances claims for plant and machinery and obtain advantageous early tax relief.
With the capital allowances annual investment allowance (AIA) due to fall from £100,000 to £25,000 next year, HMRC said it was aware of a scheme to ‘side step’ the anti-avoidance rules.
It claims that the scale of the tax potentially put at risk by the scheme is such that it has decided to close the loophole with immediate effect.
The closure of the loophole, which was originally proposed for April 2012, will now have effect for expenditure incurred on or after 12 August 2011.
Announcing the move, the Economic Secretary to the Treasury, Justine Greening said: ‘The Government is determined to reduce tax avoidance in order to protect the Exchequer, which provides funding for public services, and maintain fairness for the taxpayer.
‘By ending this loophole today we will preserve important revenue while maintaining a ‘fair system of capital allowances to support business investment.’
As announced in last year’s Emergency Budget, the capital allowances regime will undergo major reform from April 2012.
The AIA, which offers tax relief at 100% on qualifying expenditure in the year of purchase, will be significantly reduced to £25,000, while the rates of writing down allowance are also set to fall.
The WDA rates for new and unrelieved expenditure on plant and machinery will be reduced from 20% to 18% per annum for expenditure allocated to the main rate pool, and from 10% to 8% per annum for expenditure allocated to the special rate pool.