companies make significant claims for allowances, and how many companies, in particular the small and medium sized business, just claim up to the annual investment allowance (AIA) limit* and nothing more. There have been stories circulating for decades about how few people are claiming the allowances they are entitled to, but based on the statistics in the report, particularly that only 30,000 are claiming more than £200k, it seems the level of underclaim far exceeds the rumoured levels and needs addressing. The review looked at what realistic options there are to amend the current capital allowances regime to make it both simpler and more Tax Simplification (OTS) looked at whether capital allowances could and should be replaced by giving tax relief on accounts depreciation. It wasn’t the first time the idea had been considered and once again it was rejected; but this time a more rigorous investigation has taken place. It seems the issue of the complexity of the system is now a problem that cannot be overlooked. So what does the report reveal and what changes may result from it? We are currently awaiting HMRC reaction to the report and its recommendations, so the story is to be continued. However, what I found revealing in the report were the statistics showing how few fair. (see footnote for a summary statement from the OTS). By far the biggest objection to the current system is having to separate items out and decide what qualifies for capital allowances and what does not. This is complicated, time consuming and unfair, as different businesses are treated differently over the same assets. Therefore, changes which reduce the burden of detailed analysis must be introduced. One of the recommendations of the review is to look at producing a list of all items that will qualify for relief for all taxpayers – a manual that you can consult to look up an item and see what type of relief it should get. This is the approach that Australia adopted many years ago. It has been shown to have its own challenges and may not achieve the simplicity that the OTS are hoping for, but it could be a step in the right direction. It should at least tackle the inequality of taxpayers being treated differently in respect of the same items, but as the Australia model has already shown, the intelligent advisors can still muddy the waters if the application of the rules is not drawn tightly enough – their list is voluminous and growing all the time! Other tweaks to the system have been suggested, and for the most part, they should be welcomed as ways to make things more straightforward and transparent. Another interesting proposal is to widen the scope of AIA and apply it to all assets a person acquires, rather than just to qualifying items. This would achieve the simplification objective and address the problem around lack of appetite for a wholesale change to depreciation tax relief. It may also go a significant way towards addressing the problem of underclaiming, putting all businesses on a more level playing field By far the biggest objection to the current system is having to separate items out and decide what qualifies for capital allowances and what does not PERSPECTIVES 24 TOPICAL Replacing CAs with depreciation would be a radical change. It could* be done and this report describes how. It is not clear that it should* be done. The long- term benefits it would deliver would not be enough to make the disruption worthwhile. However, nothing in this review has made the structure of the CA regime seem simple. It is complicated and at times unfair as between different businesses. The only benefit of the way that tax relief is currently given is that it exists already and some people are familiar with it. The CA system should be improved. Ways of achieving this are set out in this report. Some can happen quickly, others will take longer to implement. *The bold emphasis is the OTS’s own.