Maximising tax benefits to purchase energy saving plant and machinery

For many UK manufacturers with a large number of mechanical processes, energy consumption is a key area of expenditure and with energy costs set to rise over the long term, organisations are being encouraged to invest in technologies which not only minimise energy usage, but which improve power efficiencies and reduce energy wastage.

For a number of years, there have been tax breaks such as the Annual Investment Allowance and the Enhanced Capital Allowances (ECAs) which help businesses to finance investments in assets – and more specifically, for businesses who invest in energy saving plant or machinery.

The cost to a business – whether it’s making improvements to a property or enhancing the energy efficiency of the building can potentially be reduced with Tax Relief.  However, it is necessary for the taxpayer (or their agent) to identify and claim those allowances.  Ensuring that claims are maximised and allowances used in the most efficient way can save significant amounts of tax.

So how easy is it to maximise these tax benefits?

Annual Investment Allowance (AIA)

Basically, if your business purchases a piece of equipment that qualifies for the Annual Investment Allowance (AIA), then you can deduct 100% of the cost of that asset from your business’s profit – before you work out how much tax is due on that profit.

Effective from January 2019 and until 31st December 2020, the Annual Investment Allowance (AIA) will be temporarily increased from £200,000 to £1,000,000 – giving businesses an attractive tax incentive to purchase assets.

Investment in certain green technologies is also eligible for further tax breaks.

Enhanced Capital Allowances (ECAs)

Launched in 2001, the Enhanced Capital Allowances (ECAs) were designed to encourage the investment in energy efficient equipment – which is in addition to the AIA £1,000,000 allowance and as with the AIA, is eligible for 100% tax relief in the first year of purchase.

ECAs are available on the purchase of specific high-performance energy-efficient equipment.  Technologies which qualify for this 100% tax break, includes item such as energy efficient boilers, energy saving lighting systems, air conditioning and refrigeration systems.

Wiltshire based SMARTech energy are specialists in energy management and reduction.  MD, Stuart Pearce says “Energy is one of the most significant costs for an organisation, but with energy efficient technologies greatly reducing power consumption – and therefore energy costs, it’s the investment in these technologies which are essential for improved profitability and sustainability”.

Fast Track Capital Investment Decisions

Ultimately, Stuart adds “Utilising these tax breaks gives businesses an attractive tax incentive to fast-track their capital investment decisions – which not only enables organisations to purchase improved machinery, but fulfils both compliance, CSR commitments and financial objectives”.