BUSINESS
IT PAYS FOR YOUR BUSINESS TO BE KIND TO THE ENVIRONMENT
Tax relief in the form of a capital allowance is normally available to a business when it incurs expenditure on plant and machinery. This may be claimed as an annual investment allowance (AIA) which provides relief at 100% of the cost but up to an annual limit, or as writing down allowance available at either 18% or 8% dependent upon the type of expenditure incurred. However, businesses are being encouraged to invest in energy efficient plant and machinery and the incentive to invest in such technologies is the generous allowances that have been created to give maximum, immediate relief on the cost. There are two ways of obtaining relief dependent upon whether your business is profitable (energy saving capital allowances) or loss making (tax credits on energy efficient plant) and these are explained in more detail later in the article.
FEED IN TARIFFS AND THE RENEWABLE HEAT INCENTIVE
Since April 2012, ECAs have not been available in respect of expenditure on plant and machinery which generates electricity or heat and which attracts tariff payments under either Feed in Tariff or renewable heat incentive schemes. However, ECAs continue to be available in respect of expenditure on such equipment provided that no tariff payments are received. In addition, since April 2012, expenditure on solar panels has been designated as special rate expenditure and therefore attracts an annual writing down allowance of just 8% a year on a reducing basis if the expenditure is not covered by the annual investment allowance.
ENERGY SAVING CAPITAL ALLOWANCES
FIRST YEAR TAX CREDITS FOR ENERGY SAVING OR ENVIRONMENTALLY BENEFICIAL PLANT OR MACHINERY
Expenditure on ‘energy saving plant and machinery’ attracts enhanced capital allowances (ECAs) at 100% of the cost in the year in which it is incurred. This enhanced allowance is separate from and in addition to the AIA. Qualifying products within these technologies must meet certain eligibility criteria specified on the Energy Technology List (ETL).
The categories of Energy Saving Plant and Machinery are as follows:
• air-to-air energy recovery • automatic monitoring and targeting equipment – including componentbased and portable systems • boiler equipment – including hot water and steam boilers, biomass boilers and room heaters, condensing water heaters and flue gas economisers • combined heat and power (CHP) • compressed air equipment – including flow controllers and master controllers • heat pumps for space heating – including air source, water source and ground source • heating, ventilation and air conditioning (HVAC) equipment – including HVAC zone controls and close control air conditioning • lighting – including high-efficiency lighting units, lighting controls and white-light emitting diode units • motors and drives – including integrated motor drive units, variable speed drives, switched reluctance drives, and single speed and multiple speed motors • pipework insulation • refrigeration equipment – including air-cooled condensing units, cellar cooling equipment, automatic air purgers, and refrigerated display cabinets and fittings • solar thermal systems • uninterruptible power supplies • radiant and warm air heaters – including overhead radiant heaters, packaged warm air heaters and biomass fire warm air heaters • certain energy efficient hand dryers
In 2008 the government introduced new payable tax credits for companies making losses, where those losses are attributable to first-year allowances for expenditure on energy-saving or environmentally beneficial plant or machinery. The initiative originally began on 1 April 2008 and was due to end on 31 March 2013. However, this has been extended for a further five years and should now end on 31 March 2018. The idea behind the scheme is that a cash tax credit can be claimed by a company where it is loss making and it would not otherwise benefit immediately from an enhanced capital allowance. A company c an claim a first-year tax credit for a chargeable period in which it has a ‘surrenderable loss’. The amount of tax credit is 19% of the surrenderable loss subject to an upper limit of either £250,000 or the company’s total PAYE and NIC’s liabilities for ‘payment periods’ ending in the chargeable period, whichever is greater. A company can choose whether to claim the whole or only part of the amount. It should be noted however that, broadly speaking, the first-year tax credit may be clawed back where relevant plant or machinery is then disposed of within four years after the end of the chargeable period for which the tax credit was claimed. When considering tax relief on capital expenditure, it is important to seek advice in order to maximise any available claim and minimise your tax liabilities. The area can be complex, but please speak to your local Wilkins Kennedy advisor who will be happy to provide you with the right advice.
If you would like to find out more, please contact Rick Schofield on 01233 629255 or
[email protected]
www.insidekentmagazine.co.uk
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