CA23135 - Plant and Machinery Allowance (PMA): First Year Allowance (FYA): environmentally beneficial plant and machinery

CAA01/S45H - S45J and SI2003/2076

Legislation was introduced in FA03 to give 100% FYA on environmentally beneficial plant and machinery. Broadly, the assets that qualify currently are plant and machinery for improving water quality and reducing water use. This FYA will come to an end on 1/6 April 2020. Expenditure must be incurred on or after 1 April 2003 and before 1/6 April 2020 to qualify for 100% FYA.

Businesses of any size can qualify for this 100% FYA.

Environmentally beneficial plant and machinery is plant or machinery:

  • of a description specified by Treasury order, and
  • that meets the environmental criteria specified by Treasury order for plant and machinery of that description.

There is a Water Technology List that contains details of the technologies and products that can qualify for 100% FYAs. The document is in two parts.

The Water Technology Criteria List sets out the environmentally beneficial criteria for each technology class. The classes are:

  • flow controllers;
  • leakage detection equipment;
  • meters and monitoring equipment;
  • efficient taps;
  • efficient toilets;
  • rainwater harvesting equipment;
  • water reuse systems;
  • cleaning in place equipment;
  • efficient showers;
  • efficient washing machines;
  • water efficient industrial cleaning equipment;
  • water management equipment for mechanical seals;
  • grey water recovery and reuse equipment.

The Water Technology Product List lists the products in the technology classes that have been accepted as meeting those criteria. Detailed guidance on this can be found at ‘Water efficient enhanced capital allowances’, gov.uk.

The Details of the lists and the dates they took effect are set out below:

Date lists issued Date lists took effect
30 July 2003 1 April 2003
13 July 2004 26 August 2004
15 July 2005 22 September 2005
19 August 2006 7 September 2006
25 July 2007 16 August 2007
16 July 2008 11 August 2008
7 July 2009 4 August 2009
28 September 2010 8 November 2010
2 September 2011 1 October 2011
5 July 2012 2 August 2012
10 October 2012 7 November 2012
1 July 2013 7 August 2013
2 July 2014 7 August 2014
7 July 2015 4 August 2015
6 July 2016 6 October 2016
19 February 2019 29 March 2019

The normal exclusions CA23113 apply. In addition, FYAs can only be claimed on assets that are new and not second hand and not long-life assets.

An item on which expenditure is incurred needs to be specified in the relevant Treasury order to qualify for 100% FYA. Expenditure may be incurred on environmentally beneficial assets after an announcement has been made but before a Treasury order is made. If the expenditure would have qualified for 100% FYA if the order had been in force when it was incurred the expenditure qualifies for 100% FYA, but the FYA is not given until the order is made.

A person may buy an asset that is not in itself environmentally beneficial plant and machinery but includes components that are. If so, you have to identify the proportion of the expenditure incurred by the buyer that can qualify for 100% FYA. Do not use the normal rules for allocating expenditure. There are special rules for environmentally beneficial plant and machinery.

This is the basic rule for allocating expenditure incurred on an asset containing a qualifying component (or components). The proportion of the expenditure incurred on the provision of the asset that qualifies for 100% FYA will be the amount specified in the order for the particular component (or components) included in that asset. The balance of the expenditure incurred does not qualify for 100% FYA under Section 45H but it can still qualify for capital allowances at the normal rate.

If the total expenditure incurred on the asset containing the qualifying component (or components) is less than the amount specified in the order for the component or components incorporated in that asset, the total expenditure qualifies for 100% FYA.

Where the expenditure on an asset containing a qualifying component (or components) is incurred in stages, allocate the expenditure qualifying for 100% FYA evenly between each stage. Do this by comparing the total expenditure to be incurred with the expenditure that will qualify for 100% FYAs. Apply this fraction to each payment to get the part of each payment that qualifies for 100% FYAs.

Example Jim buys a piece of equipment costing £90,000 that incorporates an item of environmentally beneficial plant or machinery. The amount on the order for the part incorporated in the equipment is £18,000. He pays for the equipment in three instalments - one of £40,000 and two of £25,000. The parts of the payments that qualify for 100% FYA are

£8,000 = £40,000 x £18,000 / £90,000

£5,000 = £25,000 x £18,000 / £90,000 and

£5,000 = £25,000 x £18,000 / £90,000.

If a certificate of environmental benefit is revoked the taxpayer should amend the relevant return to withdraw any 100% FYA claimed.