Capital allowance changes target leasing abuse
Annual capital allowances of 25% are to be reduced to 6% for assets with estimated working lives of 25 years or more. This will bring tax practice ‘more closely into line with normal accountancy practice’, writes Andrew Sawers. But while the Government expects this to generate #325m of revenue in 1998-99 and #675m the year after, tax experts were hard pressed to think of many assets which would be regarded as having such long lives. John Cullinane, a tax partner at Arthur Andersen, said that the move was a low-key attempt to stamp out cross-border abuse: ‘There is a lot of shopping around the world for the best place to tax-depreciate aircraft.’ But Tony Hughes at Coopers & Lybrand said that the power transmission lines of the energy companies would also be hit.
Most industrial plant and machinery would appear not to fall into the new 6% category. Rolls-Royce writes down such assets over an average estimated life of 17 years in its accounts, while ICI estimates average useful lives at 18 years.
