The Department for Environment, Food and Rural Affairs (DEFRA) has worked together with HM Revenue & Customs to encourage firms to invest in environmentally beneficial products. HM Revenue & Customs have introduced a tax incentive by giving enhanced capital allowances for investments made in environmentally beneficial products.
When buying this type of equipment the cost of the equipment is written off by depreciating it over its useful life. However this depreciation is not allowed for tax purposes and is therefore disallowed against taxable profits. What are allowable are capital allowances which equates to 25% of the cost but on a reducing balance method.
Buy a machine for £2,000
In year one, charge the profit and loss account with 25% = £500
In year two, charge the profit and loss account with (£2,000-£500) x 25% = £375
In year three, charge the profit and loss account with (£2,000-£500-£375) x 25% = £281.25 and so on….This takes 8 years before 95% of the cost has been deducted for tax purposes.
The advantage of buying Steam Clean Systems equipment is you get enhanced capital allowances as our machines are environmentally friendly due to the reduction in water usage.
Therefore rather than getting 25% of the cost on a reducing balance method and thus taking 8 years to write off 95% of the cost against profits, you get 100% of the cost against any taxable profit in the year the investment was made.
The benefit to businesses of the enhanced capital allowances is thus a cash flow boost resulting from the reduction of the business’s tax bill of the year in which the investment is made.