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Clock ticking for accelerated tax relief on water, waste and energy investments

Updated: Jul 5, 2020

Budget 2018 announced the withdrawal of Enhanced Capital Allowances for most energy or water efficient plant and machinery from April 2020 and businesses that make significant investments on eligible assets beyond this 12 month period are set to lose out.

Businesses involved in Food and Drink, Electronics, Chemicals, Printing, Construction, Metal Finishing and Hospitality or Leisure are likely to be most affected by the change.

What are Enhanced Capital Allowances

Enhanced Capital Allowances (ECAs) were introduced in 2001 by Gordon Brown to encourage UK business investment in more expensive “green technologies” to improve operational efficiency and help reduce carbon footprints.

They were intended to provide a straight forward way for businesses to improve their cash flow through accelerated tax relief.

The rules apply to certain energy and water efficient plant or machinery and the benefits include:

  1. 100% First Year Allowances (instead of 6%, 8% or 18%), or if loss making;

  2. First Year Tax Credit of 19% (reducing to two thirds of the prevailing CT rate in 2018/19).

Significant Investment Only

With the temporary increase in Annual Investment Allowance to £1 million it is now only investment in qualifying expenditure beyond this amount that is likely to benefit before ECA withdrawal on 1 April 2020 (companies) and 6 April 2020 (unincorporated businesses).

If you are looking to upgrade or build a new facility where water or energy consumption is going to be key you will need to plan and consider the availability of ECAs well in advance of the deadline to benefit.

Energy Efficient Technologies

There are 16 supported energy efficient technologies, many of which have their own sub-category.

With the exception of (4), (9) and (11), most operate a product based system approach (i.e. the product you’ve purchased needs to match what is registered on the ECA website).

There are also restrictions on products that receive a Feed-In Tariff or Renewable Heat Incentive.

  1. Automatic Monitoring & Targeting (aM&T)

  2. Air-to-air energy recovery devices

  3. Boiler Equipment

  4. Combined Heat and Power

  5. Compressed Air

  6. Heat pumps

  7. Heating, Ventilation and Air Conditioning (HVAC) Equipment

  8. High Speed Hand Air Dryers

  9. Lighting equipment

  10. Motors and Drives

  11. Pipework Insulation

  12. Radiant and Warm Air Heaters

  13. Refrigeration Equipment.

  14. Solar Thermal Systems and Collectors

  15. Uninterruptible Power Supplies

  16. Waste Heat to Electricity Conversion Equipment

Water Technology List

There are 15 supported water technologies some of which have their own sub-technologies.

Like the ETL list, most are based on a product registration based system but some (15) require a “Certificate of Environmental Benefit” in order to qualify

  1. Cleaning-in-place equipment

  2. Efficient showers

  3. Efficient taps

  4. Efficient toilets

  5. Efficient washing machines

  6. Flow controllers

  7. Greywater recovery and reuse equipment

  8. Leakage monitoring and control equipment

  9. Meters and monitoring equipment

  10. Rainwater harvesting equipment

  11. Small-scale slurry and sludge dewatering equipment 

  12. Vehicle-wash water reclaim units

  13. Water efficient industrial cleaning equipment

  14. Water management equipment for mechanical seals

  15. Water re-use systems

For further details on this or any aspect of the UK tax incentives available for capital and related expenditure please do not hesitate to get in touch.

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