What did section 45A of the Capital Allowances Act 2001 originally provide?

Section 45A originally allowed businesses to claim 100% first year allowances on qualifying expenditure on energy-saving plant or machinery listed on the government-approved Energy Technology List. This enabled the entire cost to be written off against taxable profits in the year of purchase, rather than being spread over multiple years through writing down allowances.

Why was the section 45A first year allowance for energy-saving plant withdrawn?

Finance Act 2019, section 33(1)(a), amended section 45A to end the enhanced relief. The policy rationale was that energy-efficient technologies had become more mainstream over time, and other allowances such as the annual investment allowance were considered sufficient to provide adequate capital allowances relief for most businesses investing in such equipment.

What alternative capital allowances are available after the section 45A amendment?

Following the withdrawal of 100% first year allowances under section 45A, businesses purchasing energy-saving plant or machinery can claim relief through the annual investment allowance if sufficient allowance remains, or by adding the expenditure to the capital allowances pool and claiming writing down allowances at the applicable rate, such as 18% per annum on a reducing balance basis in the main rate pool.

How does the section 45A amendment affect a business purchasing energy-efficient equipment?

A business can no longer deduct the full cost of energy-saving plant or machinery in the year of purchase under section 45A. For example, a £200,000 energy-efficient boiler that previously qualified for a full 100% first year allowance must now be relieved through the annual investment allowance or writing down allowances at the applicable pool rate over several years.

Capital Allowances Act 2001 section 45A

Expenditure on energy-saving plant or machinery

Section 45A provided for 100% first year allowances on expenditure incurred on designated energy-saving plant or machinery, and was amended by Finance Act 2019 to bring this relief to an end.

Section 45A originally allowed businesses to claim 100% first year allowances (FYAs) on qualifying expenditure on energy-saving plant or machinery, enabling the entire cost to be written off against taxable profits in the year of purchase.
The plant or machinery had to be of a type specified on the Energy Technology List, which was maintained and published by the relevant government department, to qualify for the enhanced relief.
Finance Act 2019, section 33(1)(a), amended section 45A to phase out this first year allowance, reflecting a policy decision to withdraw this particular capital allowances incentive.
Following the amendment, expenditure on energy-saving plant or machinery is no longer eligible for 100% FYAs under this provision, though standard capital allowances (such as the annual investment allowance or writing down allowances) may still apply.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member