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Budget 2007 podcast

Tax Rates & Allowances

Capital allowances - protecting the environment

The Chancellor today announced a series of proposed changes to the existing enhanced capital allowances regime, including:

Introduction of a payable tax credit for losses resulting from capital expenditure on energy saving technologies, water efficient technologies and the cleanest biofuel plant to ensure both profit and loss making firms have an incentive to invest
Introduction, subject to State Aid clearance, of a 100% first year allowance for biofuel plants that meet certain qualifying criteria and which make good carbon balance inherent in their design
Review of classes of equipment that can qualify for enhanced capital allowances for good quality Combined Heat and Power to ensure that the scheme includes all necessary equipment for Combined Heat and Power facilities to use solid refuse fuel
Addition, from 2007, of vehicle wash water reclaim units, efficient industrial cleaning equipment and water management equipment for mechanical seals to the water technology list.

Our view
These measures represent the latest series of potential extensions to the enhanced capital allowances regime offering accelerated tax relief by way of a 100% first year allowance for investment in approved technologies and equipment as well as the prospect of a tax credit for the first time. In light of the reduction in writing down allowances for other plant and machinery to either 20% or even 10% reducing balance announced in this Budget, the availability of ECA's is likely to become even more attractive despite some of the challenges that exist to the securing of relief under the regime.



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