Enhanced Capital Allowances

Taxpayers can boost their cash flow by claiming 100% of the cost of their investment in energy-saving plant or machinery as a deduction from their taxable profits provided the asset purchased qualifies under the Enhanced Capital Allowances (“ECAs”) scheme. This is claimed in addition to the Annual Investment Allowance (“AIA”) which allows the first £200,000 of qualifying capital expenditure as a deduction against taxable profits.

The ECA scheme enables the entire cost of qualifying equipment to be written off against taxable profits in the year of purchase. For example, £100,000 of qualifying expenditure based on current tax rates would reduce a company’s corporate tax bill by £19,000. In comparison, £100,000 of expenditure that qualifies under the basic capital allowances rules would only reduce a company’s tax bill by £3,420. If a company is already utilising all of its AIA, an ECA claim could provide a cash flow boost of £15,580 for every £100,000 spent on qualifying assets.

Companies in a loss making position can also benefit from the ECA scheme by claiming 19% on surrendered losses that are directly attributable to ECAs. For example, if a company surrendered a loss of £100,000, they would receive a cash payment of £19,000 from the Government. The maximum credit claimable is limited by the company’s total PAYE and National Insurance payments for the year in which the claim is made or, if greater, £250,000. The Autumn statement announced proposals to extend the scheme until March 2023 at the same time reducing the rate of the claim to 2/3rds of the Corporation Tax Rate (e.g. 19% will be reduced to 12.67%). This is only available to companies and not individuals.

In order to qualify for an ECA claim, the assets must be either “energy saving” or ”environmentally beneficial plant and machinery” (covering various types of water related technology). For Energy Saving assets, the specific product must be listed on the Energy Technology Product List (“ETPL”) at the time it is purchased or qualify under the Energy Technology Criteria List (“ETCL”). The water efficient products can be found on the “Water Technology List”. Taxpayers should seek confirmation from their installer as to whether equipment qualifies for ECA allowances prior to purchase.

For more information, please do not hesitate to contact Lesley Connon or your usual AAB contact.