The Association of Taxation Technicians (ATT) warns that the freezing of indexation allowance could cause problems for companies if inflation were to increase significantly.
In his Autumn Budget 2017, the Chancellor announced that the indexation allowance given when companies calculate chargeable gains will be frozen from 1 January 2018.
Indexation allowance is a tax relief which allows companies to write off the inflation from the value of an asset when they sell it. The freeze in this allowance means that companies will not receive relief for any increase in an asset’s value due to inflation which accrues after 1 January 2018.
Yvette Nunn, Co-chair of ATT’s Technical Steering Group, said:
“The Government has announced this measure as bringing companies in line with individuals (who cannot claim any relief for inflation related increases in assets values).
“However, we note that it does not completely level the playing field, as individuals are entitled to a tax free annual exemption for chargeable gains (currently £11,300) which is not available to companies.
“When inflation rates are relatively low, indexation allowance may not make much of a difference to the calculation of company gains. However, it does become more important in times of high inflation.
“We would recommend that the Government keeps the position under review, and considers ‘thawing’ indexation relief if inflation increases significantly.”