Enterprise zone relief 'should have gone further'

ADVISORS have criticised the government's decision to offer 100% capital allowance in a restricted number of enterprise zones.

Chancellor George Osborne said in his Autumn Statement yesterday that capital allowances of 100% would be available to encourage manufacturing and other industries in the zones of Liverpool, Sheffield, the Tees Valley, Humber, and the Black Country, as well as the North Eastern zone, with a possible extension to the Port of Blyth. This means that tax depreciation of 100% on plant and machine expenditure will now be available rather than the 18% or 8% in some cases.

Osborne also announced two new zones yesterday - Humber and Lancashire - in addition to the 22 zones already announced.

However, advisors have questioned whether the 100% capital allowance should be rolled out to all the zones.

Stephen Herring, tax partner at BDO, said: "It is regrettable that the chancellor has considered it necessary to restrict the 100% capital allowances in enterprise zones to less than a third of the zones previously announced. In our view, the chancellor should have avoided this excessive degree of tax relief targeting; if the area merits an enterprise zone, it should merit full capital allowances relief."

Harinder Soor, director in KPMG's capital allowances advisory practice, said this was not as generous as the 1980s/1990s enterprise zones as there is no tax relief on buildings or structures

Patrick Stevens, tax partner at Ernst & Young, said there was a concern that enterprise zones only move investment from one locality to another one nearby. "If the government is convinced that these Zones are a good idea they could have gone further," he added.