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HMRC internal manual

Capital Allowances Manual

Plant and Machinery Allowance (PMA): First Year Allowance (FYA): environmentally beneficial plant and machinery

CAA01/S45H - S45J and SI2003/2076

Legislation was introduced in FA03 to give 100% FYA on environmentally beneficial plant and machinery. Broadly, the assets that qualify currently are plant and machinery for improving water quality and reducing water use. Expenditure must be incurred on or after 1 April 2003 to qualify for 100% FYA.

Businesses of any size can qualify for this 100% FYA.

Environmentally beneficial plant and machinery is plant or machinery:

  • of a description specified by Treasury order, and
  • that meets the environmental criteria specified by Treasury order for plant and machinery of that description.

 

There is a Water Technology List that contains details of the technologies and products that can qualify for 100% FYAs. The document is in two parts.

The Water Technology Criteria List sets out the environmentally beneficial criteria for each technology class. The classes are:

  • efficient taps;
  • efficient toilets;
  • flow controllers;
  • leakage detection;
  • meters and monitoring equipment;
  • rainwater harvesting equipment (from 26 August 2004);
  • water reuse systems (Note: this technology class replaces and incorporates the ‘efficient membrane filtration systems for the treatment of wastewater for recovery and reuse’ technology class that was added on 22 September 2005. From 11 August 2008, that technology class became a sub-technology of water reuse systems.);
  • cleaning in place equipment (from 22 September 2005);
  • efficient showers (from 22 September 2005);
  • efficient washing machines (from 7 September 2006);
  • small scale slurry and sludge dewatering equipment (from 7 September 2006);
  • vehicle wash water reclaim units (from 16 August 2007);
  • water efficient industrial cleaning equipment (from 16 August 2007);
  • water management equipment for mechanical seals (from 16 August 2007).
  • grey water recovery and reuse equipment (from 7 August 2013).

 

The Water Technology Product List lists the products in the technology classes that have been accepted as meeting those criteria. Detailed guidance on this can be found here

The Details of the lists and the dates they took effect are set out below:

Date lists issued Date lists took effect
   
30 July 2003 1 April 2003
13 July 2004 26 August 2004
15 July 2005 22 September 2005
19 August 2006 7 September 2006
25 July 2007 16 August 2007
16 July 2008 11 August 2008
7 July 2009 4 August 2009
28 September 2010 8 November 2010
2 September 2011 1 October 2011
5 July 2012 2 August 2012
10 October 2012 7 November 2012
1 July 2013 7 August 2013
2 July 2014 7 August 2014

The normal exclusions CA23110 apply with one exception. Up until 31 March 2006 the exclusion for plant provided for leasing did not apply to environmentally beneficial plant and machinery provided for leasing. From 1 April 2006 onwards the exclusion does apply unless the plant is provided for leasing under an excluded lease of background plant and machinery, CA23835. So from 1 April 2006 environmentally beneficial plant and machinery provided for leasing only qualifies for 100% FYA if it is provided for leasing under an excluded lease of background plant and machinery.

An item on which expenditure is incurred needs to be specified in the relevant Treasury order to qualify for 100% FYA. Expenditure may be incurred on environmentally beneficial assets after an announcement has been made but before a Treasury order is made. If the expenditure would have qualified for 100% FYA if the order had been in force when it was incurred the expenditure qualifies for 100% FYA, but the FYA is not given until the order is made.

A person may buy an asset that is not in itself environmentally beneficial plant and machinery but includes components that are. If so, you have to identify the proportion of the expenditure incurred by the buyer that can qualify for 100% FYA. Do not use the normal rules for allocating expenditure. There are special rules for environmentally beneficial plant and machinery.

This is the basic rule for allocating expenditure incurred on an asset containing a qualifying component (or components). The proportion of the expenditure incurred on the provision of the asset that qualifies for 100% FYA will be the amount specified in the order for the particular component (or components) included in that asset. The balance of the expenditure incurred does not qualify for 100% FYA under Section 45H but it can still qualify for capital allowances at the normal rate.

If the total expenditure incurred on the asset containing the qualifying component (or components) is less than the amount specified in the order for the component or components incorporated in that asset, the total expenditure qualifies for 100% FYA.

Where the expenditure on an asset containing a qualifying component (or components) is incurred in stages, allocate the expenditure qualifying for 100% FYA evenly between each stage. Do this by comparing the total expenditure to be incurred with the expenditure that will qualify for 100% FYAs. Apply this fraction to each payment to get the part of each payment that qualifies for 100% FYAs.

Example Jim buys a piece of equipment costing £90,000 that incorporates an item of environmentally beneficial plant or machinery. The amount on the order for the part incorporated in the equipment is £18,000. He pays for the equipment in three instalments - one of £40,000 and two of £25,000. The parts of the payments that qualify for 100% FYA are

£8,000 = £40,000 x £18,000 / £90,000

£5,000 = £25,000 x £18,000 / £90,000 and

£5,000 = £25,000 x £18,000 / £90,000.

If a certificate of environmental benefit is revoked the taxpayer should amend the relevant return to withdraw any 100% FYA claimed.