Enhanced Capital Allowances - The End of an Era
The Enhanced Capital Allowance (ECA) scheme was created in 2001 to provide a financial incentive for businesses to invest in products that meet the standards for high energy efficiency performance. Improved levels of energy efficiency can help reduce operating costs and lower energy bills. The use of higher energy efficiency equipment also results in reduced carbon dioxide emissions, and helping to combat climate change.
The Benefit
Companies that buy energy efficient qualifying products are currently able to receive accelerated tax relief on the purchase of that equipment, by claiming a 100% capital allowance in the year of purchase. There is no cap on the level of relief claimable for profit making businesses. This means that businesses can immediately offset 100% of equipment purchase cost against their taxable profits, including any direct costs associated with installation and transportation of equipment.
ECAs differ from standard capital allowances, which only permit a portion of the equipment value to be taken as tax relief in the purchase year (currently rates allow between 6% and 18% for different asset classes), with the remaining value of the equipment offset against future years’ tax reliefs.
When you are looking to maximise your capital allowances claim, and in assessing your scope to claim ECAs, the main items that qualify are lighting, air conditioning and hand dryers. You can find qualifying makes and models which attract ECAs on the Energy Technology List - the ETL website, below:
https://etl.beis.gov.uk/engetl/fox/live/ETL_PUBLIC_PRODUCT_SEARCH/search
The Deadline
ECAs for energy efficient qualifying products will end for new product purchases on 1 April 2020. Therefore, any raised invoices for qualifying product purchases will need to be before this date. It should also be noted that invoices must be paid no later than 4 months after the invoice date. To avoid any argument with HMRC, YesTax recommends that invoices are actually paid before 31 March 2020.
If you have any queries, or want to discuss further, please contact us at hello@yes.tax