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Capital investment support explained

In today’s tough economic climate capital investment has, for many businesses, been put on hold. But for those who still want to invest in the long term or need capital investment to take the business to a new level, the focus is very much on value. But, reports Tracy Jenkins, tax director of the Southampton-based chartered accountants HWB, that does not necessarily mean price

“Energy saving and environmentally beneficial capital investment programmes have traditionally been more expensive with so-called green products often carrying premium prices. But initiatives introduced by the government have made such investment extremely attractive in recent years,” explained Jenkins.

The Enhanced Capital Allowance Scheme (ECA) delivers accelerated tax benefits for businesses investing in equipment that meets published energy saving criteria.

The ECA allows businesses to write off 100% of the cost of purchasing “green” capital items against taxable profits in the first year after purchase. So a business paying corporation tax at 28% will receive £280 of tax relief for every £1,000 invested.

And for those businesses which are not delivering profit in the current climate, the government introduced a tax credit scheme in the budget which delivers a rebate for such purchases which has the added benefit of supporting cashflow for this kind of capital investment.

All businesses in England which pay UK corporation or income tax qualify for ECA, regardless of their size, sector or geographical location. However, it is only companies that qualify for tax credit rebates.

There are three schemes for ECAs: energy saving plant and machinery; low carbon dioxide emission cars and refuelling infrastructure; and water conservation plant and machinery.

The government-backed organisation, The Carbon Trust, details the criteria for each type of technology and lists specific products in each of these categories which meet those criteria. These appear in The Energy Technology List which has two sections.

The Energy Technology Criteria List (ETCL) outlines the overriding criteria for inclusion and is updated annually to take into account technological advancement. The ETPL identified the specific products and technologies which are eligible for ECA as well as the details of maximum claim values. This is updated at the beginning of each month. Both are accessible at the ETPL website: www.eca.gov.uk/etl.

“As well as attracting accelerated tax relief, this technology is also eligible for an interest-free energy efficiency loan from The Carbon Trust. SMEs which have been trading for more than 12 months can borrow from between £5,000 and £200,000 on an unsecured interest-free loan which is repayable over a period of up to four years with no arrangement fees – a significant boon in today’s “credit crunch” lending environment,” said Jenkins.

“Investment in energy saving capital equipment can be an all-round winner. It supports environmental goals, is tax efficient, has potential for interest-free funding, and may result in reduced energy bills and climate change levy as well as reducing the period that the investment takes to pay back on the business. With long and short term benefits such as these, any business looking to make capital investments in these fields should at the very least consider the green options.” HWB can offer advice and undertake the calculations.

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