CA23150 - Plant and Machinery Allowance (PMA): First Year Allowance (FYA): expenditure incurred by energy services provider

CAA01/S175A, S180A, S182A, S192A & S195A

In the past, 100% first-year allowances were available under CAA01/SS45A-45C CAA01 for certain types of energy-saving plant and machinery. These first-year allowances were repealed with effect from 1/6 April 2020 (FA19/S33).

In connection with those historic first-year allowances, changes were made to the plant and machinery fixtures rules in CAA01/Ch14 to enable parties to an energy services agreement to elect under CAA01/S180A to transfer deemed ownership of relevant fixtures to the energy services provider.

Although this election regime was introduced in connection with the first-year allowances which have now expired, it is not limited to those first-year allowances. It is still in force and could theoretically be used today to enable an energy services provider to claim other types of PMAs in respect of plant and machinery used under an energy services agreement.

It is unlikely that you will come across such an election now that the first-year allowance has expired but for completeness, the conditions for making a valid election are listed below.

Conditions for the making of a CAA01/S180A election

An election under CAA01/S180A can be made if all the following conditions are met:

  • An ‘energy services agreement’ is made. This is an agreement between an ‘energy services provider’ (a person carrying on a qualifying activity consisting wholly or mainly of energy management services) and a client. The agreement must make provision, with a view to saving energy or using energy more efficiently, for designing, obtaining, installing, operating and maintaining plant or machinery (or a system or systems incorporating plant or machinery) and it must link any payments in respect of the operation to the energy savings or increase in efficiency,
  • the energy services provider incurs capital expenditure under the agreement on the provision of plant or machinery,
  • the plant or machinery becomes a fixture,
  • at the time the plant or machinery becomes a fixture, the client has an interest in the relevant land, and the energy services provider does not,
  • If it were not for the election, the client would have been entitled to claim allowances as a result of CAA01/S176 if the client had incurred the expenditure,
  • the plant or machinery is not provided for leasing, nor for use in a dwelling-house,
  • the operation of the plant or machinery is carried out wholly or substantially by the energy services provider or a connected person,
  • the energy services provider and the client are not connected persons.

The election must be made by notice to an officer of HMRC no later than 2 years after the chargeable period in which the capital expenditure was incurred, for corporation tax purposes, or on or before the normal time limit for amending the relevant tax return for income tax purposes. The effect of the election is to treat the energy services provider and not the client as the owner of the fixture as a result of incurring the expenditure.