Enhanced capital allowances (ECAs) in the form of a 100% first year allowance are available for expenditure on certain plant and machinery incurred between specified dates within ‘designated assistance areas’ of Enterprise zones (EZs). In Budget 2016 the Government announced several new and extended EZs, with ECAs available for expenditure incurred for up to eight years from the date of the creation of the EZs.
ECAs will only be available on plant and machinery expenditure if the following criteria are satisfied:
- The business is a UK company subject to corporation tax (i.e. excludes unincorporated businesses and partnerships of companies)
- The expenditure must be on new and unused plant and machinery and not on 'replacement expenditure' (i.e. performs the same, or similar function). However where significant additional function is performed by the replaced asset or where it enhances capacity or productivity, the expenditure attributable to the additional function may qualify for EZs
- The assets must not be leased
- The expenditure must be incurred for one of the following purposes:
- a business of a kind not previously carried on by the company
- expanding a business carried on by the company
- starting up an activity relating to a fundamental change in a product or production process of, or service provided by, a business carried on by the company.
A number of qualifying activities are excluded from the EZ regime:
- Fisheries or aquaculture sectors
- Coal sector, steel sector, shipbuilding sector or synthetic fibres sector
- Relating to the management of waste of undertakings
- Relating to the primary production of agricultural products and certain activities relating to, and preparation for, the first sale of animals or plants.