Finance Act 2013

Finance Act 2013

2013 CHAPTER 29

Introduction

Section 67: Allowances for Energy-Saving Plant and Machinery: Northern Ireland

Summary

1. Section 67 ensures that where Renewable Heat Incentive (RHI) tariffs, and should it be introduced at a future date Feed-in Tariffs (FIT), are paid in respect of heat or electricity generated (or gas or fuel produced) 100 per cent first-year allowances (FYAs) are not available under section 45A of Capital Allowances Act 2001 (CAA) for expenditure incurred on the plant and machinery (P&M) in Northern Ireland that generates or produces it. This brings Northern Ireland into line with the rest of the United Kingdom.

Details of the Section

2. This section extends the coverage of section 45AA CAA, which at present only applies to incentives given under RHI and FIT schemes extending to Great Britain. The section ensures that expenditure on P&M in Northern Ireland, where RHI is paid in respect of heat generated (or gas or fuel produced) by that P&M, does not qualify for FYAs for energy-saving technologies.

3. The section also ensures that should a FIT scheme be introduced in Northern Ireland at a later date, expenditure on P&M, where FITs are paid in respect of electricity generated by that P&M, will be treated in the same way as the rest of the United Kingdom.

4. Subsection (4) introduces a new sub-section 45AA(5A). This sets out the dates from which the amendments to 45AA takes effect.

Background

5. Capital allowances allow the cost of capital assets to be written off in computing the taxable profits of a business. Most businesses are entitled to an annual 100 per cent allowance, the annual investment allowance (AIA), for their investment in most types of P&M up to an annual limit. The Government has announced that for the two year period 1 January 2013 to 31 December 2014 that limit will be increased from £25,000 per annum to £250,000. From 1 January 2015 it will revert to £25,000.

6. For expenditure above the AIA limit, writing-down allowances (WDA) are available at the main rate of 18 per cent or the special rate of 8 per cent per annum depending upon the type of P&M. FYAs may be available for expenditure on certain types of P&M as an alternative to AIA and WDA. Available at a rate of 100 per cent, they provide a targeted incentive to invest in particular P&M. Certain FYAs, often described as enhanced capital allowances or ECAs, are available for expenditure on designated energy-saving P&M that meets certain criteria required by the Energy Technology Criteria List.

7. The Energy Act 2008 provided for FITs to incentivise small scale electricity generation and RHI to support heat generation from renewable sources. A number of the technologies that qualify for FITs and RHI, also potentially qualify for FYAs. However, FYAs are intended to complement, rather than duplicate, the effects of other Government policies supporting such investments.

8. The legislation at Section 45AA CAA was introduced by Finance Act 2012 preventing FYAs in Great Britain from being available for expenditure on P&M from 1 April 2012 (corporation tax) or 6 April 2012 (income tax), where that P&M is in receipt of a tariff under either the FITs or the RHI schemes as set out in the Energy Act 2008. One exception to this is that FYAs are still available for expenditure incurred on renewable CHP until 31 March 2014 (corporation tax) and 5 April 2014 (income tax), even when RHI tariffs are paid.

9. An RHI scheme has recently been introduced for Northern Ireland As the legal vires for that scheme is the Energy Act 2011, section 45AA does not apply. To ensure consistency of treatment throughout the United Kingdom, section 45AA is being extended to include expenditure on RHI schemes in Northern Ireland. The amendment also ensures that should a FIT scheme be introduced into Northern Ireland, expenditure on such a scheme will be treated in the same way as the rest of the United Kingdom.

10. The amendment takes effect from 1 April 2013 (corporation tax) and 6 April 2013 (income tax). Where the expenditure is incurred on CHP systems, the changes take effect from 1 April 2014 (corporation tax) purposes and 6 April 2014 (income tax).