Enhanced Capital Allowances

ECAs enable a company to claim 100% first-year capital allowances on their expenditure on qualifying energy efficient plant and machinery – Until April 2020!

Wind Farm

Boosting Cash Flow through Accelerated Tax Relief

The Autumn Budget Statement on 29 October 2018 announced the withdrawal of Enhanced Capital Allowances (ECA) as from April 2020. In part, to help fund some of the other capital allowances changes. I the meantime, ECAs continue to encourage investment in water and energy efficient technologies. The government introduced, in 2001, these 100% first year allowances for investment in designated energy and water saving plant and machinery.

The Enhanced Capital Allowances (ECA) scheme is split into two categories:

The ECA scheme enables the full cost of the qualifying asset to be relieved (written off) against taxable profits in the period of investment.

This accelerates the relief over and above the standard rates of capital allowances so it can be offset against taxable profits in an earlier period than would normally be possible; providing a significant cash flow boost, whilst at the same reducing a business’ environmental impact.

The introduction of Energy Performance Certificates (EPCs) and subsequently the Minimum Energy Efficiency Standards (MEES) regulations mean that landlords have to improve and upgrade their properties is their EPC rating is F or G, otherwise they can’t lease them (unless exempt). These requirements have increased the interest in ECAs as careful tax planning will attain the best EPC rating, benefit from the available tax reliefs and reduce energy use.

Proactive Tax Planning

Too many taxpayers fail to consider the ECA opportunities early enough, if at all. They often assume their professional advisors, whether the design team, surveyors, contractors or accountants, have “considered all the options”; wrongly assuming all energy efficient assets attract ECAs. The reality we see as property taxation specialists is that these allowances are rarely reviewed comprehensively nor considered proactively early on. Perhaps Government felt the same, that ECAs were not fully hitting the mark to drive 'greener' taxpayer behaviour.

When ECAs are considered early in the design stages of a project then there is more opportunity to correctly identify and install the products which qualify for ECAs and so fully optimising the capital allowances – boosting cash flow!

If the exercise is left until later into the construction process it becomes difficult and expensive to substitute the products.

Design Tax Audit Workshop

E3 Consulting's award winning team are able to offer a tax design audit workshop to ensure the design team are aware of the tax consequences of their design decisions and the potential for worthwhile tax relief before, during and after the construction project.

We are often introduced early on in the design process to bridge the communication gap between the client, their professional advisers and wider project design team. Our input enables the client to make well informed, robust, business decisions where the enhanced capital allowances claim will be optimised and fully substantiated.

These rules remain in force until 31 March 2020 for corporation tax and 5 April 2020 for income tax purposes. So if you have current projects do get in touch to ensure you optimise your cash flow whilst ECAs remain available.

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