Thinking of investing in energy efficient assets for your business? You need to act soon to benefit from additional tax relief.

5th February 2020

The Enhanced Capital Allowance (ECA) Scheme, which was introduced in 2001 to encourage businesses to invest in energy-saving equipment, will come to an end from 1 April 2020*. However, you do still have time to take advantage of this scheme if you act soon.

What is the ECA scheme?

The ECA scheme allows 100% of the costs of qualifying plant and machinery (including LED lighting, energy-efficient boilers and the installation of certain pipework) to be written off against taxable profits, in addition to any claim for Annual Investment Allowance (AIA), lowering the tax bill for many businesses.

Lighting

Why is it coming to an end? 

Due to the fact that Building Codes and Minimum Energy Efficiency Standards (MEES) have naturally improved the efficiency of buildings, the government have decided to invest £315m into the Industrial Energy Transformation Fund (IETF), as a push towards a low carbon economy, rather than continuing with the complex tax relief.

The primary purpose of the (IETF) is to reduce emissions from large businesses through increased energy efficiency initiatives and technologies.

What are the impacts of the ending of the ECA?

For businesses that have fully utilised their AIA, the withdrawal of the ‘ECA’ Scheme will mean any expenditure in excess of the AIA threshold, will be eligible for tax relief using ‘writing down allowances’. This is when you deduct a percentage of the value of an item from your pre-tax profit each year. The percentage you can claim depends on the item, but the majority will qualify for a rate of 18%.

The AIA limit of £1,000,000 is only fixed until December 2020, after which time the threshold will return to £200,000, so the timing of capital expenditure is key. You can read about the temporary increase in the AIA and the timing of capital expenditure here.

What can I do if I’m thinking of investing in qualifying assets?

If you’re planning to invest in energy-efficient assets for your business and are likely to spend significant amounts on ECA qualifying plant and machinery, you need to think about acting immediately in order to benefit from the additional tax relief, as all eligible expenditure from now until 31 March 2020 will still qualify for ECAs.

For more advice, contact Vanessa Glenn on Vanessa.Glenn@hboltd.co.uk.

*or 6 April 2020 for unincorporated businesses.