Annual update to the Energy Technology List for first year capital allowances
Published 22 November 2017
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This publication is available at https://www.gov.uk/government/publications/annual-update-to-the-energy-technology-list-for-first-year-capital-allowances/annual-update-to-the-energy-technology-list-for-first-year-capital-allowances
Who is likely to be affected
Businesses purchasing designated plant and machinery which uses energy efficiently.
General description of the measure
This measure updates the lists of technologies and products covered by the energy-saving first year allowances (FYA) scheme. It adds 3 new products, modifies 9 and removes 2 items from the list.
The schemes allow 100% of the cost of an investment in qualifying plant and machinery to be written off against the taxable income of the period in which the investment is made, improving cash flow for businesses.
Policy objective
The scheme aims to reduce the consumption of energy by business, by encouraging their investment in the most efficient plant and machinery. This can help reduce overall energy costs and carbon emissions, aiding the UK’s carbon reduction obligations.
Background to the measure
Since its introduction, in 2001, the scheme has been updated annually to ensure that only the most efficient products are supported.
Detailed proposal
Operative date
The changes to the scheme will have effect on and after a date to be appointed by Treasury Order, to be made immediately after Autumn Budget 2017.
Current law
Capital expenditure by business on plant and machinery normally qualifies for tax relief by way of capital allowances. Once businesses have fully used their annual investment allowance (AIA), which has been £200,000 since 1 January 2016, plant and machinery allowances are available at 18% main rate and 8% special rate.
This scheme provides an alternative 100% first-year allowance for expenditure on certain energy-saving technologies (Capital Allowances Act 2001, section 45A), which is particularly beneficial for those businesses that have fully used their AIA.
Recommendations for updates to the list of qualifying technologies and products for the scheme, and reviews of the relevant criteria are made annually by the Department for Business Energy and Industrial Strategy (BEIS).
Treasury ministers decide on the availability of the FYA, with the qualifying technologies published in the Energy Technology Criteria List.
Proposed revisions
A statutory instrument will amend the list of technologies that qualify for the energy-saving scheme. It introduces evaporative air coolers, saturated steam to electricity conversions and white LED lighting modules to the list.
It removes 2 categories: localised rapid steam generators and biomass fired warm air heaters from the list, and it modifies the qualifying criteria for 9 current technologies.
The secondary legislation will also combine all the previous Treasury Orders to combine the information into a single Order.
Details on when the new lists take effect will be published in the Energy Technology List section of GOV.UK.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
The Office for Budget Responsibility has included the impact of this measure in its forecast at Autumn Budget 2017.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure has no impact on individuals or households as it only affects businesses.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The FYA scheme is aimed at businesses. Following discussions with BEIS on this year’s amendments, HM Revenue and Customs (HMRC) has not identified any impact on any specified groups.
This measure does not impact on the equality of groups with protected characteristics.
Impact on business including civil society organisations
This measure will affect all businesses who incur expenditure on plant and machinery that qualifies for the scheme.
The scheme allows qualifying expenditure to be written off in the period in which the investment is made, thereby improving businesses cash flow.
This measure is expected to have a negligible impact on businesses administrative burdens.
For 99% of businesses there will be no impact because the majority of the expenditure they incur on plant and machinery will be eligible for full relief under the separate AIA, at up to £200,000 per year since 1 January 2016.
For those businesses that have fully used their AIA, the updates will come into effect soon after Autumn Budget 2017. One-off costs include familiarisation with the updated list. On-going costs may include submitting additional claims that can now be made as a result of the updated list.
The scheme and qualifying products will be published on GOV.UK. Where contracts have been finalised for the delivery of qualifying plant and machinery that are to be removed from the scheme as a result of the changes, those items will still qualify for the allowance even if delivered after the updates take effect. There is no impact on civil society organisations.
Small and micro business assessment: This measure applies to all sizes of business, but in practice it will only affect those with qualifying plant and machinery expenditure above the level of the AIA. As a result there is expected to be very limited impact on small firms, the large majority of which incur less than the AIA limit annually on capital expenditure.
However, should a small business decide to write off the cost of qualifying plant and machinery under the schemes, rather than AIA, they will need to identify the products that qualify and make a claim.
These measures will have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
It is anticipated that there will be no significant operational impacts on HMRC arising from this measure with no IT changes required.
Other impacts
Carbon assessment and wider environment impact: by incentivising investment in energy and water efficient technologies, this measure should reduce carbon emissions and encourage sustainable use of water resources.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through regular communication with affected taxpayer groups.
The lists of technologies and products that qualify for the schemes are also reviewed every year by BEIS. This ensures that the list remains relevant and that qualifying criteria are discussed with suppliers to ensure they remain accurate and effective.
Further advice
If you have any questions about this change, please contact Tunde Ojetola on telephone: 03000 585916 or email: tunde.ojetola@hmrc.gsi.gov.uk