The UK’s capital allowance regime must be simplified to support businesses’ growth
The UK’s capital allowance regime must be simplified to support businesses’ growth, say leading audit, tax and business advisory firm, Blick Rothenberg.
Yusuke Takanishi, a partner at the firm, said: “The UK capital allowance regime gives businesses tax relief for investing in assets such as machinery, equipment, and property.
He added: “Claiming capital allowance has become increasingly complex following measures in the 2025 Autumn Budget. This could discourage businesses from investing in assets they need to grow as getting relief requires taking on a heavy administrative burden.”
Yusuke said: “In contrast, Japan’s system remains largely aligned with accounting depreciation, where the cost of an asset is spread out over its useful life by a business. This often aligns with tax depreciation, which allows a business to recover the cost of purchasing eligible tangible assets, such as machinery, equipment and properties. This system offers greater simplicity and predictability for businesses.”
He added: “The UK does not follow accounting depreciation for tax purposes, instead applying a separate capital allowance system that frequently produces materially different outcomes when compared to the actual cost of the asset to the business over its useful life.”
Yusuke said: “While measures set out in the Budget such as full expensing are welcome in principle, the growing number of asset categories, transitional rules and exclusions has increased the complexity of businesses tax management and widened the gap between the tax and accounting treatment of assets. Using a system more like Japan’s would simplify the application for and administration of asset tax relief for businesses and HMRC.”
He added: “For many small to medium-sized Japanese subsidiaries operating in the UK, the £1m Annual Investment Allowance can be highly beneficial, providing a clear and immediate incentive for investment in business assets. Simplifying the system would benefit not just Japanese firms, but almost all businesses operating in the UK.”