Capital allowances can reduce the amount of tax you pay when you buy energy efficient, low or zero-carbon technology for your business.
It was announced in the Budget that two categories will close soon, so there is limited time left for those.
Businesses are allowed to write off investment in plant and machinery against their profits as capital allowances.
For most equipment, other than cars, the whole of the first £200,000 can be written off by the annual investment allowance (AIA). The balance can be written off more slowly at 18% a year.
For smaller businesses the limit on the AIA rarely has an impact, but for larger businesses and those investing heavily it can be a restraint on their capital allowances claims.
If your business is investing in green technology, you may be able to claim first year allowances instead of the AIA. For cars this will be instead of the writing down allowance. For most purposes the tax effect is the same, but these allowances do not use up the £200,000 AIA limit.
As a result, allowances can potentially be claimed much earlier, which can be good for your cash flow. For cars, it makes a big difference to the timing of allowances. There are a number of categories of qualifying ‘green’ expenditure. Here are some examples.
Cars qualify as green if they’re electric or low-CO2 emission (currently 50g/km). This will apply up to the end of March 2021, although the g/km test may vary.
Goods vehicles qualify only if they’re zero-CO2 emission, up to the end of March 2021.
Until the end of March 2019, new plant installed to charge electric vehicles can qualify.
Equipment for a gas refuelling station (natural gas, biofuel or hydrogen) will also qualify, up until the end of March 2021.
Energy-saving plant and equipment
There is a long list of government-approved items that qualify as energy-saving plant and machinery. These include boilers, combined heat-and-power, lighting, motors, refrigeration systems, automatic monitoring systems, heat pumps, solar thermal systems, high-speed hand dryers and uninterruptible power supplies. This category currently has no end date.
It is worth nothing that anything that generates a feed-in tariff payment or similar does not qualify.
For the full list of approved items, visit: www.gov.uk/guidance/energy-technology-list. This category will end on 31 March 2019 for companies and 5 April 2019 for other businesses
Environmentally friendly plant and machinery
This category applies to technology or products to remedy or prevent damage to the environment or natural resources. Any equipment has to meet specific environmental criteria, which so far are all water-based. Types of equipment include flow controllers; efficient taps, toilets, showers and washing machines; grey-water recovery systems; meters; leakage detection systems and rainwater harvesting systems. This category currently has no end date. This category will end on 31 March 2019 for companies and 5 April 2019 for other businesses
Consider your options
If your business uses up its annual AIA of £200,000 or if you’re buying cars, it’s worth considering whether you could qualify for first year allowances instead.
Alternatively, you may be able to change things to bring some expenditure within the categories that qualify. This would give you a 100% deduction in the first year instead of having to write it off slowly at 18% a year. In the case of cars it could also mean a much lower benefit-in-kind tax charge for employees that use them.