The End to the Enhanced Capital Allowance
Following the release of the new financial budget back in October 2018, sustainability professionals may have been left feeling let down at the lack of discussion on environmental issues during Phillip Hammond’s budget speech.
After a closer look at the budget, Mainer Associates would like to discuss two significant changes to public spending within the energy sector:
- The end of Enhanced Capital Allowances and first year tax breaks for technologies on the Energy Technology list and Water Technology List from April 2020.
- Savings from this scheme will be reinvested into the Industrial Energy Transformation Fund.
The new budget has a clear focus on energy efficiency. The government feels there are better ways to improve uptake of energy efficiency technologies and support large business in reducing operational energy demands and costs.
The enhanced capital allowance (ECA) scheme currently allows large companies and corporations to claim 100% of costs for investments in certain plant and machinery, against their taxable income. The scheme is applicable to environmentally beneficial technologies listed on the Energy Technology List (ETL) and the Water Technology List (WTL). The ECA scheme is a great incentive for companies to invest in energy efficiency and low carbon heating and cooling systems. Tax breaks on such technologies embody clear benefits for positive economic growth whilst reducing environmental impacts.
The government plans to remove these allowances for a large range of technologies on the two lists. This will affect businesses who invest in energy efficient plant and machinery which currently qualify for first year tax credits. Bigger companies with larger revenue may still be eligible for tax relief under the annual investment allowance (AIA) at up to £200,000 per annum.
Click here to find out if your technologies are eligible before April 2020.
A positive step or missed opportunity?
The government has opted to invest £315m into the Industrial Energy Transformation Fund. The primary purpose of this fund is to reduce emissions from energy intensive businesses. The government feels this fund will provide better ways than ECAs to achieve the transition to a low-carbon economy. The fund will assist large businesses to decarbonise their operations through increased energy efficiency initiatives and technologies. The specifics on how this will be done are yet to be fully revealed by the government.
The Industrial Energy Transformation Fund (IETF) is planned to run for five years and has received positive and negative responses from sustainability and energy intensive industries. The fund should increase the number of energy efficiency projects that are financially viable for businesses and help industrial-scale energy bill payers, remove costs and emissions.
However, there will be definite losers following the end of ECAs with the new fund arguably too focused on large corporations. There will be firms that previously benefited from tax breaks which will not be eligible for new funds due to the size of their operations. Furthermore, the five years allocated for the scheme and current lack of details on how funds will be used does not offer certainty to big businesses.
Other critics argue the government has missed another clear opportunity to make positive and significant investments into renewable energy industries and technologies. They suggest the new budget allocation for investment in decarbonisation focuses too much on energy efficiency and not enough on renewables. The word ‘renewable’ does not feature once in the Budget!