Enhanced Capital Allowances

Boosting Cash Flow through Accelerated Tax Relief

Enhanced Capital Allowances (ECAs) encouraged investment in water and energy efficient technologies. The government introduced, in 2001, these 100% first year allowances (FYAs) for investment in designated energy and water saving plant and machinery.  ECAs were phased out following the Budget Statement on 29 October 2018.

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

• Energy-saving plant and machinery
• Water conservation plant and machinery

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

This accelerated the relief over and above the standard rates of capital allowances so it can be offset in full 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’s 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 if their EPC rating is F or G, otherwise they can’t lease them (unless exempt). These requirements had increased the interest in ECAs, with landlords looking to benefit from the available tax reliefs and reduced energy use. 

Changes to Enhanced Capital Allowances

The Autumn Budget Statement on 29 October 2018 announced the withdrawal of ECAs as from 31 March (Corporation Tax) and 5 April 2020 (Income Tax). In part, to help fund some of the other capital allowances changes, announced at that time.

Any expenditure qualifying for ECAs up to the withdrawal dates, may still be claimed in the period the expenditure was incurred.  These claims must be made within the normal tax window – effectively within two years of the period incurred. Therefore, it is important that action is taken now to preserve the cash flow benefit that the 100% FYA delivers.

Subsequently, although these assets will no longer qualify for the FYAs under the ECA rules, the expenditure will now revert to the more ‘normal’ Plant & Machinery Allowances (PMAs) or Integral Features Allowances (IFAs).

Furthermore, currently taxpayers may also claim their capital allowances as Annual Investment Allowance (AIA), currently capped at the first £1million of expenditure.  Hence there is still opportunity for significant first year tax savings on your property expenditure.

Expenditure on electric vehicle charging points (EVP), also benefit from 100% FYAs under s.38 FA(No2)2017, and will continue to be eligible for 100% FYAs until 31 March/5 April 2023.

Looking Forward

If your projects have included energy efficient or water saving assets, then you may have been entitled to 100% ECAs on any qualifying assets.  The tax savings are time sensitive, so don’t delay in assessing the correct tax claims – so as to avoid losing the accelerated 100% benefit. 

Despite, these changes, there are a wealth of further valuable tax incentives still accessible for property owners, investors, developers and occupiers. For taxpayers to benefit from all of the available capital allowances relief and truly optimise the tax savings from their property expenditure, then do get in touch to see how E³ Consulting can help you with our detailed and expert analysis of your project expenditure.