Q&A guide to claiming tax relief on energy-efficient kit

There are just two months left in which to take advantage of a government scheme encouraging businesses to invest in energy efficient equipment.

The Energy Technology List (ETL) covers a set of energy-saving items such as biomass boilers, electric motors and lighting which qualify for full tax relief through the Enhanced Capital Allowance (ECA) tax scheme.

It was established to encourage investment in energy efficient equipment which is often more expensive to buy than less efficient alternatives. ETL products have to meet specific energy criteria.

The scheme is scheduled to close on 31 March 2020.

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What kit is eligible?

There are about 14,000 items on the ETL, ranging from air conditioning systems, boilers, biomass equipment, lighting and refrigeration equipment, through to pipework insulation and solar thermal systems.

For a product to qualify for an ECA, it must be on the ETL on the day of purchase.

You can search for eligible products by technology type, manufacturer, product name and model number at the ETL website.

Plant or equipment that has already benefited from other support such as the Renewable Heat Incentive or Feed in Tariff is ineligible for the ECA.

Who manages the list and when is it updated?

The Carbon Trust manages the ETL for the Department for Business, Energy and Industrial Strategy (BEIS), and updates it with new products on the first and 15th of each month.

Note that products can be removed from the list. Products removed since 1 April 2017 will appear on the list with a note of their removal  date.

How can farmers benefit?

Any business that pays income or corporation tax can write off the entire cost of any eligible equipment against taxable profits in the year of purchase.

Matthew Appleyard, a tax adviser at accountant Duncan & Toplis, says allowing costs to be written off in this way, rather than on a reducing balance basis over multiple years, means investments in energy-saving plant or machinery can be made where they might otherwise have been too expensive.

For example, a sole trading farmer who makes an annual profit of £50,000 and buys an ETL-listed heat recovery unit for their dairy farm or refrigeration unit for a packhouse, paying £20,000, could see a tax saving of £5,800 in that tax year.

However, Mr Appleyard notes that with the current Annual Investment Allowance (AIA) being £1m, many farmers and other small and medium-sized businesses have recently found they do not need to claim ECA to receive the same tax benefits.

What if the business made a loss?

This varies depending on how the farm business operates.

Loss-making partnerships or sole traders can still claim ECAs, although doing so increases their losses. “These will be automatically carried forward to set against the first available trading profit or against other income, depending on individual circumstances,” says Mr Appleyard.

A farm business operating as a limited company can surrender all or part of the loss attributable to the investment in assets qualifying for ECAs, in exchange for a repayable tax credit (currently worth 19% of the loss surrendered).

A first-year tax credit is not taxable income and could benefit cashflow, but Mr Appleyard says this relief is also being withdrawn from 31 March 2020 in line with the withdrawal of ECAs and First-Year Allowances.

How does the ETL work with other allowances?

Claiming ECAs does not affect other tax relief. The 100% allowance available for ETL items is separate from the AIA, so a farmer who has already used their full AIA against other plant and machinery can still claim the ECA on qualifying equipment.

Can I claim for something already installed?

This depends when the equipment was bought, as individuals have only limited time to amend their tax returns to claim an ECA.

“Farmers who believe they may have a claim should speak to their professional advisers for further assistance,” Mr Appleyard says.