The Department for Environment, Food and Rural Affairs (DEFRA) collaborated with HM Revenue & Customs to promote corporate investment in environmentally beneficial products. HM Revenue & Customs introduced a tax incentive through enhanced capital allowances for investments in such products.
When purchasing this equipment, businesses write off its cost by depreciating it over its useful life. However, tax regulations disallow this depreciation against taxable profits. Instead, businesses can claim capital allowances, equivalent to 25% of the cost on a reducing balance method.
Purchase a machine for £2,000. In the first year, apply a 25% charge to the profit and loss account, amounting to £500. In the second year, apply a 25% charge to the remaining balance (£2,000-£500), resulting in £375. Continue this pattern, deducting 25% annually until it takes 8 years to deduct 95% of the cost for tax purposes.
Opting for Steam Clean Systems equipment provides the advantage of enhanced capital allowances due to the machines’ environmental friendliness and reduced water usage. Rather than the conventional method of obtaining 25% of the cost on a decreasing balance, which takes 8 years to write off 95% against profits, our approach allows you to claim 100% of the cost against any taxable profit in the year of the investment.
Businesses benefit from enhanced capital allowances by experiencing a cash flow boost, stemming from a reduced tax bill in the year of the investment. This immediate write-off against profits enhances cash flow and presents a more favourable financial scenario in the business.