Income and Corporation Tax: repeal of the renewals allowance
Published 16 March 2016
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Who is likely to be affected
Businesses and landlords currently using renewals allowance to obtain tax relief for expenditure on replacement and alteration of tools.
General description of the measure
The measure will ensure that tax relief for expenditure incurred by a business on replacement and alteration of tools is obtained under the same rules as apply to other equipment.
Policy objective
This measure ensures that the tax rules provide fairness by giving the correct amount of deduction against trading or property income for capital expenditure incurred on equipment used in a trade or property business.
Background to the measure
The measure was announced at Budget 2016.
The renewals allowance predates capital allowances and was intended to allow the costs of replacing implements, utensils and articles used in a business.
Some businesses have recently sought to obtain relief under the renewals allowance provisions for expenditure on very large and expensive items of equipment. The renewals allowance was never intended to apply to expenditure of that nature and the measure protects that position.
In addition, the renewals allowance legislation is no longer necessary. At the date of repeal, alternative provisions will provide tax relief for this type of expenditure under the existing capital allowances regime or the new relief for residential landlords, for costs incurred in replacing domestic items such as furnishings and appliances.
Detailed proposal
Operative date
The measure will repeal the renewals allowance with effect for expenditure incurred on or after 6 April 2016 for income tax purposes and from 1 April 2016 for Corporation Tax purposes.
These dates align with the introduction of a new relief for domestic items for residential landlords, ensuring alternative relief for this type of expenditure is available.
Current law
Section 68 of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA) contains the income tax rules for the renewals allowance. The equivalent Corporation Tax rules are contained at Section 68 of Corporation Tax Act 2009 (CTA 2009).
Proposed revisions
Legislation will be introduced in Finance Bill 2016 to repeal the relevant provisions in ITTOIA and CTA 2009.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| +5 | +5 | +5 | +5 | +5 |
These figures are set out in Table 2.1 of Budget 2016 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is not expected to have any impact on individuals or households.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure is not expected to have any impact on groups with particular protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on a small number of businesses claiming relief for expenditure on tools. Relief for such expenditure will be available through capital allowances or the new relief for domestic items for landlords.
Operational impact (£m) (HM Revenue and Customs (HMRC) or other)
It is anticipated that there will be no significant operational impacts on HMRC arising from this measure with no IT changes required. Guidance will be updated.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
This measure will be monitored through information collected from tax returns.
Further advice
If you have any questions about this change, please contact Mark Bingham on Telephone: 03000 511496 or email: mark.bingham@hmrc.gsi.gov.uk.