High utility bills remain a burden to businesses in the hospitality and leisure industry with large proportions of energy consumption attributable to storage and heating facilities. For instance, commercial refrigeration equipment alone accounts for 50 per cent of the electricity usage of supermarkets (and 30 per cent of pubs and clubs), according to the Carbon Trust. Exploring energy saving opportunities is therefore important for companies looking to improve their bottom line growth.
The Government’s Enhanced Capital Allowances (ECA) creates one avenue for businesses to improve energy efficiency. The ECA is a tax relief scheme designed to encourage investments in low carbon, energy saving plant or machinery, such as boilers, pipe insulation or refrigeration equipment. The ECA scheme also seeks to encourage investment in water conservation technologies.
Under the ECA, eligible businesses can write off the entire cost of their capital investment on qualifying environmentally beneficial and energy saving plant and machinery against the taxable profits of the period in which the investment was made. There is no cap on the amount that can be claimed, unlike the Annual Investment Allowance, which is limited to £500,000 of eligible expenditure in any tax year.
The ECA provides businesses an opportunity to invest in more efficient plant and machinery through tax breaks and also has further benefits such as a reduced carbon footprint leading to a lower Climate Change Levy or Carbon Reduction Commitment (CRC) payments.
What types of technology qualify?
In order to qualify for ECAs, the plant and machinery purchased must meet the energy saving criteria set out in the Energy Technology List (ETL) which is managed by The Carbon Trust on behalf of the Department of Energy and Climate Change (DECC).
The ETL consists of the Energy Technology Product List (ETPL) and the Energy Technology Criteria List (ETCL). The ETPL is updated monthly and lists the products available for ECAs. The ETCL is updated on an annual basis and sets energy saving criteria that must be met for each type of technology. The ECA scheme also encourages businesses to invest in technologies that save water and qualifying technologies are set out in the Water Technology List (WTL).
Examples of expenditure which qualify for ECAs, where specified criteria is met, includes expenditure on energy efficient boilers, heating, ventilation and air conditioning equipment, as well as expenditure on water efficient products such as taps, toilets, monitoring and cleaning equipment.
Some technologies, such as component based Automatic Monitoring and Targeting (AMT) may qualify for ECAs where relevant eligibility criteria are met, despite not being listed on the ETPL. Products in these technology categories are commonly referred to as non-listed products.
A claim for ECA is made on a company’s tax return, just like other capital allowances. Supporting evidence should be provided and this will vary depending on whether the product purchased is listed or non-listed.
Where a product is ETPL listed, the value of the claim will be based on the invoice value of the product. Where a technology is non-listed, businesses should obtain evidence from the equipment supplier or installer that the product meets the ECA qualifying criteria currently in force. It is therefore important for businesses looking to invest in new technology to keep all relevant documentation, including invoices or dated screenshots from the ECA website. Interested businesses are also advised to confirm that a product is eligible for an ECA before committing to a purchase, as allowances cannot be claimed on a product which is added to the list after purchase.
Budget 2014 – recent changes
Following George Osborne’s Budget 2014 announcement, the Finance Bill 2014 confirmed that two new technologies will be added to the list of qualifying energy-saving scheme: active chilled beams and desiccant air dryers with energy saving controls. The scheme, which was due to expire on 31 March 2017, has also been extended for three more years to 31 March 2020 in enterprise zones. The Bill also confirmed that expenditure on electric cars or cars with very low CO2 emissions (up to 95g/km) will also qualify for ECAs.
Next steps for HAL businesses
The ECA creates a valuable opportunity for businesses to reduce their tax liabilities. The scheme presents an opportunity for companies to review the energy performance of current operating systems, such as refrigerated display cabinet commonly used throughout food industry, or heating facilities.
In order to capitalise on the benefit of ECAs and other measures, where businesses are planning to carry out building, renovation, or other improvement works, it is vital they consider at an early stage the works and equipment required. Other energy saving initiatives which may be of interest to HAL businesses include the Feed-In-Tariff and Renewable Heat Incentive schemes which provide financial subsidies for investment in renewable electricity generation and renewable heat generation respectively, provided certain eligibility criteria are met.