Budget Notes

BN13 ENHANCED CAPITAL ALLOWANCES FOR ENERGY EFFICIENT AND WATER SAVING (ENVIRONMENTALLY-BENEFICIAL) TECHNOLOGIES

Who is likely to be affected?

1. Businesses purchasing designated plant and machinery which is energy efficient, reduces water use or improves water quality.

General description of the measure

2. The Energy Efficient and Water Saving (environmentally-beneficial) Enhanced Capital Allowance (ECA) schemes allow businesses investing in designated technologies that reduce energy consumption, save water or improve water quality to write off 100 per cent of the cost against the taxable profits of the period during which the investment was made.

3. This measure will add to the List of technologies covered by the schemes.

Operative date

4. The changes to the schemes will have effect on and after a date to be appointed by Treasury order to be made prior to the Summer 2008 Parliamentary recess.

Current law and proposed revisions

5. Capital expenditure by business on plant and machinery normally qualifies for tax relief by way of capital allowances, which on and after 1 April 2008 will be given at the rate of 20 per cent a year on a reducing balance basis.

6. Two schemes exist that give 100 per cent first year allowances for expenditure on certain energy-saving and water technologies. Following the annual review of the qualifying technologies, the schemes will be revised. These revisions will be made by Treasury order.

7. The qualifying technologies are published in Lists: the Energy Technology Criteria List and the Water Technology Criteria List which every year are reviewed by Defra to ensure that the qualifying technologies, and the criteria that technologies must meet if they are to qualify for the relief, are still relevant.

8. Following this year's review, the Water Technology Criteria List will be revised to include one new technology: waste water recovery and reuse systems. The Energy Technology Criteria List will be revised to include four additional sub-technologies: compressed air master controllers; compressed air flow controllers; heat pump dehumidifiers and white LED lighting. Housekeeping changes will also be made to existing criteria.

9. At Budget 2007, the Government announced that it would review the qualifying criteria for the good quality Combined Heat and Power technology within the Energy Efficient Technologies scheme, to ensure that it included all the necessary equipment to enable such facilities to use solid refuse waste as a fuel. That work is now complete and steps will be taken to revise the qualifying criteria at the same time as the other changes.

10. All revisions will be incorporated in new Lists which will be published later in 2008. Once these have been published a Treasury Order will link them to the schemes. The lists are available on the internet at www.eca.gov.uk

Further advice

11. If you have any questions about this change, please contact Nick Williams, on 020 7147 2541 (email: nicholas.williams@hmrc.gsi.gov.uk). Information about Budget measures is available on the HM Revenue & Customs website at www.hmrc.gov.uk