Posted by Tax Innovations on 23 Oct 2019

Last Chance for Energy Efficient Capital Allowances?

From April 2020 the Enhanced Capital Allowances (ECAs) available on energy and water efficient assets will be withdrawn. Currently, 100% first-year allowances are available on these assets, and where the allowances create a loss, this can be converted into a payable tax credit from HMRC.

Where a business incurs capital expenditure on energy-efficient or environmentally beneficial assets listed on HMRC’s Energy Technology List (ETL) or Water Technology List (WTL), the business can claim 100% first-year allowances under the ECA regime.

In addition, a tax credit is available for loss-making businesses who invest on qualifying items listed on the technology lists, currently at 19% of the loss created by the qualifying expenditure.

Through careful planning and procurement in consultation with the treasury lists, businesses carrying out property renovation can get 100% relief for expenditure on which they would otherwise receive capital allowances at only 6% or 18% (if at all).

This accelerated relief will no longer be possible for expenditure on or after 1 April 2020 for companies or 6 April 2020 for other businesses. Businesses intending to carry out renovation in the near future should consider whether they would benefit from carrying out this work prior to April 2020.

The withdrawal of ECAs coincides with the full application of the Minimum Energy Efficiency Standard (MEES) regulations to residential leases from 1 April 2020. Under these regulations, it is currently the case that new leases of commercial or residential property cannot be entered into where the property has an energy performance certificate graded F or G.

It has been possible to reduce the impact of these regulations by simply extending existing leases; however, from 1 April 2020, all existing residential leases will need to meet these requirements (all commercial leases will need to comply by 1 April 2023), and the potential penalty for not meeting the requirements will be between £5,000 and £150,000, based upon rateable value.

All property letting businesses should be considering whether their leases meet the MEES requirements and whether they need to bring the energy standards of their properties up to scratch. Acting before April 2020 could both make use of the last chance to claim ECAs on qualifying expenditure, while also avoiding the MEES penalties.

If you would like any advice about the withdrawal of Enhanced Capital Allowances or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or customerservice@taxinnovations.com

 

See also…

Year End Personal Tax Planning Tips

Non-Resident CGT – April 2019 Changes

Tax Relief on Residential Mortgage

Brexit Tax Implications and Advice

Green Energy Tax Breaks: Deadline Looms