§ Mr. Michael Shawasked the Chancellor of the Exchequer whether he will amplify his proposals for changes in the system of capital allowances for tax purposes, as set out in the Appendix to the White Paper on Investment Incentives Command Paper No. 4516.
§ Mr. Patrick JenkinMy right hon. Friend is able to amplify these proposals on two points of detail.
1. PLANT AND MACHINERY BOUGHT ON HIRE PURCHASE
For expenditure incurred before 27th October, 1970 by instalments on the acquisition of plant and machinery on hire purchase, an initial allowance related to the amount of each instalment is given (unless an investment grant is payable) for the accounting period in which that instalment is incurred; writing-down allowances related to the whole of the capital expenditure are given for the 433W period in which the asset is brought into use and for later periods.
This treatment will continue for expenditure incurred after 26th October, 1970 under hire-purchase contracts the first instalment of which was incurred on or before that day. Similar treatment would not, however, be generally appropriate under the new system of capital allowances, and it is proposed to include legislation in the Finance Bill, 1971, the effect of which will be that capital expenditure under a hire-purchase contract the first instalment of which is incurred after 26th October, 1970, will be treated as if the whole of the expenditure were incurred at the time when the first instalment becomes payable.
2. GROUP RELIEF DISPLACED BY CAPITAL ALLOWANCES
In the case of a company which is a member of a group or a consortium, the allowances equal to 60 per cent., and where free depreciation is available 100 per cent., of capital expenditure which are given under the new system in the accounting period in which the expenditure is incurred may have the effect of displacing group relief which would otherwise be claimable by the company for that period.
It is proposed to include legislation in the Finance Bill, 1971 to enable a company in these circumstances to exercise an option not to take in full the allowances due to it in respect of capital expenditure incurred in the period; where this option is exercised, the allowances not taken for the period in question will be added to the balance of expenditure on which writing-down allowances at the 25 per cent. rate will be given in later periods.