In the 2011 Budget the Government announced its intention to launch a consultation on proposals to clarify the capital allowances treatment on expenditure on plant or machinery that could qualify for payments under the feed-in-tariffs regime ("FITs") and/or the renewable heat incentive ("RHI"). This consultation was launched by H.M. Revenue & Customs on 31 May 2011 and closes on 31 August 2011. This consultation will be of interest to businesses who could qualify for FITs/RHI and may incur expenditure on plant and machinery on or after 1 April 2012.

The Government's view is that currently there is uncertainty over the rate at which capital allowances may be claimed which may be dependent on the business circumstances and the site of the installation. The consultation intends to clarify and simplify the capital allowances treatment in this area. It is however possible that the capital allowances available for future projects will be reduced.

Capital allowances (effectively tax depreciation) are available on certain plant and machinery at a prescribed rate based on the tax written down value of the relevant plant and machinery. Broadly the rates are:

  • 20% (reducing to 18% from April 2012); and
  • 10% (reducing to 8% from April 2012).

Enhanced capital allowances (at 100%) are currently available for designated energy and water saving plant and machinery.

Proposals for enhanced capital allowances (ECAs)

The Government considers that FITs and RHIs provide sufficient investment incentive for businesses and that ECAs are not, therefore, appropriate.

It is proposed that legislation be introduced stating that:

  • Expenditure cannot qualify for ECAs where it is incurred on plant and machinery or expenditure on a new installation that could qualify for FITs/RHIs; but
  • ECAs would remain available on additional capacity that is added to existing installations taking it over the RHI thresholds.

Proposals for other capital allowances

It is proposed that legislation be introduced so that capital allowances would only be available at the lower rate (currently 10% but reducing to 8%) on expenditure on plant and machinery that could qualify for FITs and RHIs.


This consultation will be of interest to businesses which, under the current rules, could claim capital allowances at the higher rate or ECAs such as residential solar development where it may be possible to obtain capital allowances at the higher 20% rate.

This legislation would apply to expenditure on plant and machinery regardless of whether FITs/RHIs were actually claimed by the business.

For projects potentially affected by the proposed new rates, expenditure should be accelerated and incurred prior to 1 April 2012 to benefit from the existing rates.

For further information, please contact:

Michelle Thomas
Partner, Head of clean energy and sustainability
Tel: 0845 498 7553
Intl: +44 29 204 77553

David Jervis
Partner, Head of Tax
Tel: 0845 498 4780
Intl: +44 113 200 4780

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