Clause 42 - Plant and machinery allowances: anti-avoidance

Part of Finance Bill – in a Public Bill Committee at 1:30 pm on 14 June 2012.

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Photo of Nigel Mills Nigel Mills Conservative, Amber Valley 1:30, 14 June 2012

This is a repeat of what I tried to do a year ago: to persuade the Government to consider whether the Office of Tax Simplification should look at the whole capital allowances regime to see whether there is a better way of achieving the Government’s laudable aims. I have no objection to any of the anti-avoidance measures in schedule 9; they are eminently sensible and much needed. However, each year, we have to tinker with the capital allowances regime to add a few new anti-avoidance bits, and tweak a few bits to encourage the things we would like to encourage or to discourage the things we would like to discourage.

Fundamentally, the regime is intended to give businesses tax relief for the economic cost each year of the capital assets they invest in. Encouraging businesses to invest in factories, machinery, computers and whatever they need to grow their business is key to achieving growth in our economy. We should be trying to give them simplicity and certainty that they will get relief for that investment over the economic life of that asset. I am not sure that the capital allowances regime encourages that with the fixed 18% reducing balance deduction a year—that is not a lot of use if the asset has much shorter life or needs depreciating much quicker. In fact, to respond to that, we end up with a short-life asset, a long-life asset, an environmentally friendly asset and a car asset regime, all of which allow people to use a slightly different set of rules if the main 18% does not work for them anymore.

We have ended up with a complex scheme that does not encourage business to do what we want it to do. It does not make it easy for business. Instead, it opens up a load of avoidance potential because of the underlying complexity, with the result that we have to add more complexity each year to try to close down those things. It strikes me that if we want a modern corporate tax system that makes life easy for business and for the Revenue and that contributes to achieving our entirely sensible policy aims, this is one area where some reform could achieve all those things in a much less cost-intensive manner.

That is why I urge the Government to make use of the very successful Office of Tax Simplification, which is eminently qualified to do this work. I asked it to look at this area and to consider whether there is a better way to get the investment we want and avoid the avoidance. One suggestion in the amendment is that we should simply let some businesses have their accounts depreciation charge. That is covered by all the normal accounting standards and is quite hard to manipulate, so most businesses end up with a pretty sensible depreciation profile. It is quite hard to get double deductions and to try to claim the asset in two companies, or refresh the deductions and have them again; that would impact on the accounts profit. That is one modern, reliable way for us to end up in a far better position. I commend the idea to the Minister for the second time.