What qualifies for First Year Allowances?
Businesses can claim a 100% first-year allowance (FYA) on the purchase of certain qualifying Plant and Machinery (P&M). The cash-flow benefit of accelerated tax relief is designed to encourage businesses to invest in capital items which help reduce their carbon footprint by being energy and water efficient. The list of qualifying items includes expenditure on new unused electric vehicles and other cars within the 50g/km threshold for low CO2 emissions.
The list also includes:
- energy saving equipment that’s on the energy technology product list, for example certain motors
- water saving equipment that’s on the water efficient technologies product list, for example meters, efficient toilets and taps
- plant and machinery for gas refuelling stations, for example storage tanks, pumps
- gas, biogas and hydrogen refuelling equipment
- new zero-emission goods vehicles
The use of the FYA allows companies to set the full cost of qualifying P&M against their tax bills in the year of purchase. The FYA is only available on the purchase of new qualifying cars, second-hand cars do not qualify for FYAs (but writing down allowances can be claimed).
If claiming the full amount of FYA would create a loss, it is also possible to claim less than the full 100% FYA and claim the balance using writing down allowances.
Obviously there are a range of non-tax issues that need to be considered if you are advising clients on these issues, prior to investing in new equipment or vehicles. Hopefully, this post will clarify one raft of tax allowances that you could consider.