What are enhanced capital allowances?
Enhanced capital allowances
Expenditure by businesses on energy-saving or environmentally beneficial plant and machinery qualifies for enhanced capital allowances (ECA) of 100%.
These allowances are given in full if an accounting period is shorter than 12 months, they are not pro-rated.
For example, if a company purchase an environmentally machine for £100,000, the enhanced allowance available for the machinery would be 100%*£100,000 = £100,000 ECA.
In an accounting year, if a company makes a trading loss and can also claim enhanced capital allowances in the same year, then the company can surrender part of its trading loss and receive a payment from HMRC.
Payment from HMRC is two thirds of the corporation tax rate multiplied by the amount of loss surrendered.
For 2018/19 this will be 12.67% (two thirds of the corporation tax rate rounded up the nearest second decimal place)
How much loss can be surrendered?
This is the lower of:
The amount of the trading loss after using it in the current year against total income and group relief for trading losses.
The amount of the enhanced capital allowances (ECA).
A company makes a trading loss. It has no associated companies.
After relieving the trading loss against is total income for the year, there is still (£100,000) remaining.
During the year, the company purchased environmentally friendly machinery for £50,000 on which ECAs could be claimed.
How much of this trading loss can be surrendered to HMRC?
The lower of:
£50,000 * 100% = £50,000
£50,000 can be surrendered.
Repayment from HMRC:
£50,000 * 12.67% = £6,335
Trading loss carried forward:
Trading loss £100,000
Loss surrendered (£50,000)
Trading loss c/f £50,000