A consultation was launched in the summer which set out to significantly reduce capital allowances available on plant and equipment that attract tariff payments under the FIT and RHI schemes. HMRC have now released their response which proves to be somewhat different (and more favourable) to the proposed changes. The initial proposals aimed to reduce all WDA’s (regardless of technology) to the special rate (8%) pool and remove the availability of the AIA. The following summarises the expected changes which cover the treatments of annual investment allowances (AIA), enhanced capital allowances (ECA) and writing down allowances (WDA) due to come into effect from 1st/6th April 2012 (1st/6th April 2014 for CHP).

Summary of proposed changes

• Expenditure on Solar Panels are to be treated as special rate expenditure i.e. allocated to the special rate pool on which capital allowances will be claimed at 8% WDA per annum. (Please note the taxpayer will still be able to claim the AIA against such expenditure).
• ECA will not be available on plant and machinery when it generates heat or electricity (or biogas or biofuels) that attract payments under either the FIT or RHI schemes. However, the taxpayer is going to have the option of either claiming ECAs or the tariff. If ECAs are claimed and subsequently a tariff payment is also made then the ECAs will be clawed back.
• For Combined Heat & Power (CHP) installations, the ECA change will take effect from April 2014. Therefore ECA’s may still be available whilst also claiming the FIT/RHI tariff (subject to satisfying the eligibility criteria and receiving DEFRA approval of such).

What does this all mean?

• Reduced WDAs for Solar Panels, although an AIA claim against expenditure on solar panels in preference to other plant and machinery can be made. The AIA for 2011/12 is set to be £25k. This cut is in addition to the cut in FIT set out in phase 1 of the comprehensive review.
• Other heat/electrical generating plant and machinery will attract 18% WDA per annum provided it is not considered to have an economic life of over 25 years (i.e. not a long life asset).
• If indeed the asset is considered to be a long life asset then WDAs will be at 8% from April 2012 unless expenditure in the chargeable period is less that £100k in which case the 18% remains available.
• The taxpayer faces a choice between claiming the 100% ECAs or claiming the tariff payment. The difficultly sometimes being identifying whether the asset would qualify for ECAs in the first place.
• The AIA can still be claimed on assets on which the tariff is claimed.