For any bricks and mortar business, one of the most significant investments they can make will be in plant and machinery. The natural temptation is often to keep the extent of this investment as low as possible while getting the job done in the most efficient and safest way possible.
However, that instinct may be leading businesses to miss out on immediate tax relief opportunities, long-term efficiency gains, and reduced running costs. The Government has some long-standing commitments to reduce the nation’s carbon output and reduce waste in energy use and part of its armoury here comes in the form of tax relief.
One of the most attractive is the Enhanced Capital Allowance (ECA) legislation that was introduced back in 2001 by then-Chancellor, Gordon Brown. The scheme allows businesses to write off the entire cost of any product included on the Energy Technology List (ETL) against taxable profits.
The Government understands that the energy saving and efficient technologies that it would like the country’s businesses to invest in are, on the whole, much more expensive than the standard equivalent. So, in order to encourage take-up, the Government allows businesses to secure 100% first year tax relief on qualifying equipment.
To take advantage of this, the two main categories businesses should be looking at are energy saving and water conservation plant and machinery. This can be anything from electrical systems and lifts and escalators to cold water systems or heating and cooling systems. The stipulation is that the machinery or technology must be included on the ETL but the qualifying equipment on this list changes so it is important to ensure the latest information is being used before any investment is made.
Of course, businesses can secure writing down allowances on non-energy efficient plant and machinery but the relief ranges from a meagre 8% up to a maximum of 18% and this reduces over time as the asset depreciates. By investing in technology included on the ETL, businesses can actually make the more expensive equipment more cost effective.
For example, if a business spends £10,000 on assets qualifying for ECAs, they would be able to secure tax relief of £2,100 in year one (where corporation tax is 21%). But spending slightly less (£9,000) on non-qualifying assets would deliver tax relief of only £340 in year one. The benefits are clear. In fact, it’s pretty much a no brainer.
But the returns on qualifying equipment don’t stop there – installation of the right equipment will lower a business’ overheads and reduce energy bills over the long term.
So if businesses are looking to change or renovate existing premises, it’s well worth speaking to their accountant about the ECA scheme. And for accountants, it’s well worth talking to GovGrant as we can help accounting firms generate the very best returns for their clients by using our expertise in this area.
There are of course certain requirements that must be satisfied to qualify for the tax relief but with the right advice, any business can not only make their premises more energy efficient, they can enhance their green credentials in a meaningful way, boost cashflow and keep investment in costly plant and machinery to a minimum.
