HMRC plans to remove ECA for FiTs and RHI systems

[Ted]

HMRC have just published a consultation document that expresses their plans to remove the Enhanced Capital Allowances (ECA) from any system that is eligible to receive income under either the Feed in Tariff (FiTs) or the soon to be introduced Renewable Heat Incentive (RHI).

The changes would be imposed from the start of the 2012-13 tax year, next April.

The consultation process runs until 31st August 2011.

Further details can be found on the HMRC website.

[Brandon]

just been having exactly that conversation with my brother in law...

[Ivan]

I didn't realise that PV qualified for ECA anyway. Last time I checked (admittedly a couple of years ago), I was told that it didn't qualify for ECA - and this was before FITs had been announced.

[BruceB]

I didn't realise that PV qualified for ECA anyway. Last time I checked (admittedly a couple of years ago), I was told that it didn't qualify for ECA - and this was before FITs had been announced.

PV does not qualify for ECA.
CHP does qualify for both FIT and ECA

Regards
Bruce

[Ted]

The proposed changes don't just affect ECA. HMRC also plan to clarify the treatment of renewables under the AIA WDA as well.

Hopefully a tame tax accountant will happen along and explain things.

[jotec]

I didn't realise that PV qualified for ECA anyway. Last time I checked (admittedly a couple of years ago), I was told that it didn't qualify for ECA - and this was before FITs had been announced.

PV does not qualify for ECA.
CHP does qualify for both FIT and ECA

Regards
Bruce

I have asked this before but as I have not been able to get FITs with my chp, is this CHP 'any' chp or just the gas boiler device and has it changed recently?
Dick

[knighty]

from what I read d!ck.... it's any chp, but it has to be MCS registers and tops out at 2kw ish?

(that's just from memory tho... I could well be wrong... I'm sure someone will be along to correct me soon if I am!)

[wookey]

What's an ECA?

[BruceB]

ECA - Enhanced Capital Allowances

[BruceB]

I have asked this before but as I have not been able to get FITs with my chp, is this CHP 'any' chp or just the gas boiler device and has it changed recently?
Dick

From an installer's perspective, the requirements are in the x2 MIS 2007 documents available in pdfs at the bottom of this page.
http://www.microgenerationcertification.org/installers/installers

Regards
Bruce

[BruceB]

I have had a read through the document and although not the tax accountant Ted was hoping for I think I can understand enough to contribute.

From an individual's perspective it is not relevant, it is all to do with capital allowances for businesses.

From a business perspective the following things apply:
- It pays corporation tax on FIT/RHI income in the same way as for other income.
- Costs can be set against this income under the capital allowances regime:
   - AIA is currently £100K per annum, reducing to £25K per annum from Apr 12.
   - The 2 rates of WDA for expenditure above AIA are reducing from 20% and 10% to 18% and 8% from Apr 12.
- These proposals state that any expenditure in the category that 'could' attract FIT/RHI will
   - not be eligible for ECA/FYA
   - fall under the 8% regime (because FIT/RHI technologies are equivalent to long life assets and already subsidised enough to make them attractive investments)

For an individual who has the money to spare, my view is that it is a no-brainer to invest in PV.  Cash sitting in a bank will generally attract interest at less than inflation and although another recent poster here has suggested otherwise, I do not believe dividends from equity investments are reliably above inflation at present.  The FIT income is tax free, indexed linked at rpi for 25 years and you do not get much more solid than that.  It is not so clear if you have to borrow the money though.

For a business it is not so clear because they have to pay tax on the income.  But they have also been able to claim capital allowances to set against that income.  With AIA at £100K per annum that provided a lot of flexibility for a business.  With that reducing to £25K it is going to be well below the level of cost of most business size installations to be any use, so the 8% WDA will come into play.  If the business has the cash sitting around then the sums might still work, but if a business has to borrow to fund the investment then then it is less likely to add up to a sensible investment.

I did do an illustration recently for a doctors' surgery, but their accountant could not make the sums work out unless the partners had a windfall within the business.  The partners who were senior enough to have the money available were not planning to stay around long enough to want to feed money in.  It was a pity because it was a massive clear roof on a modern town centre building that could have provided 10-20kW.  Lots of those around the country would begin to make a contribution to renewables overall.  

Where individuals introduce their own 'spare' money into a small business to fund renewables expenditure and extract interest payments from the business then that might add up.

By squeezing businesses the Government will stop any discretionary investment in renewables.  And it does squeeze business because the consultation document shows a greater inflow of money to the Treasury in the early years (£185m by 2016) due to the effect of delaying capital allowance relief.

In essence, the stated objective of making the regime simple and understandable is laudable, but the effect of squeezing (or more accurately delaying) businesses' abilty to claim capital allowances will discourage discretionary expenditure on renewables.

Although the document does have an impact assessment that covers tax and business matters, I could not see any evidence of a contribution from Chris Huhne's Department covering impact on renewables deployment.

Regards
Bruce

[jotec]

I have asked this before but as I have not been able to get FITs with my chp, is this CHP 'any' chp or just the gas boiler device and has it changed recently?
Dick

From an installer's perspective, the requirements are in the x2 MIS 2007 documents available in pdfs at the bottom of this page.
http://www.microgenerationcertification.org/installers/installers

Regards
Bruce

Thanks for that Bruce

These are the micro chp systems. As far as I know a 'normal' chp is still not eligible for FITs

[Ivan]

As far as I'm aware, it's all to do with whether you (the manufacturer) have paid the BRE or it's appointed minions (assuming any of them have paid BRE's huge fees for accreditation to inspect CHP) to 'certify' your CHP product, which will include things like getting it tested by an 'approved' testlab etc etc. Very few people are going to spend this money (probably in the order of £50k or more) for the very small CHP market, hence the distinct lack of competition, high prices and therefore low uptake - it's one of the great side-effects of giving the BRE a licence to print money in the name of increasing our uptake of renewables. 

[djh]

... the BRE ...  BRE's huge fees ... the BRE

Ivan, I think you're paying them an undue respect by using the honorific "the". From their website:
"in 1997 we stopped using the full name 'Building Research Establishment' and renamed ourselves simply ‘BRE’"

I wonder if anybody ever reads what people type in their form http://www.bre.co.uk/bretrust/haveyoursay.jsp?id=2066