Enhanced capital allowances: Lighting the way

By Dominic Greene

The Enhanced Capital Allowances (ECA) scheme offers a 100% first year allowance for expenditure incurred on energy efficient and environmentally beneficial plant and machinery. The intention of the ECA scheme is to encourage investment in energy saving plant and machinery by providing accelerated tax relief. The availability of ECA is governed by whether a particular model of plant and machinery appears on either the Energy Technology Product List (ETPL) or Water Technology List (WTL). Some products are specifically listed, whereas other 'non-listed products' need to meet defined criteria for ECA to be available.

Lighting is a technology that is not specifically listed rather than being defined on the ETPL. Claimants need to check whether the lighting that they installed qualifies under the design criteria, as opposed to sourcing the exact manufacturer and model of each piece of equipment procured and checking to see if it is listed on the ETPL. Normally, an electrical engineer could either be directed to check the qualification of what was installed or ensure that a qualifying lighting system was installed in the first place.

Before 1 April 2008, expenditure on general office lighting sometimes did not qualify for plant and machinery allowances and was therefore precluded from qualifying for ECA. Therefore, one of the major areas of potential ECA was unavailable to a large majority of tax payers and between 15% and 20% of the electrical energy use in the UK is connected with lighting .

For expenditure incurred after 1 April 2008, the new integral features legislation extended plant and machinery allowances for electrical and lighting systems for all businesses. Lighting now qualifies for plant and machinery allowances at a 10% writing down allowance because it is classified as an integral feature. However, this means that any capital expenditure on lighting could potentially qualify for ECA if it passes the design criteria, as the first hurdle of whether the lighting does or does not qualify for plant and machinery allowances has been removed. It is a good example of tax legislation being changed to further encourage the investment in energy saving technologies.

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Dominic Greene is a senior consultant at Bourne, specialising in capital allowances analysis services.