What is an Enhanced Capital Allowance (ECA)?
The Enhanced Capital Allowance is the Government’s scheme providing enhanced tax relief on equipment with environmental benefits.
Why was it introduced?
Around half of the carbon emissions come from businesses and industrial processes. The scheme was introduced to encourage businesses to invest in low-carbon, energy saving and water efficient equipment to assist in achieving the UK’s carbon targets and a broader aim of climate change mitigation.
How does it work?
The Government's Enhanced Capital Allowance (ECA) scheme allows businesses to write down 100 % of the cost against taxable profits on qualifying plant and machinery in the year of purchase. The allowance is claimed, as with any regular capital allowance, in the end of year corportate tax return.
There are three main areas of qualifying expenditure:
The scheme also covers all other costs, directly associated with the installation of equipment, including transportation and installation costs and professional fees related to acquisition and installation of eligible equipment.
Energy Saving Plant and Machinery
There are 14 technologies and 53 sub technologies, that qualify for the ECA scheme, which include energy recovery, automatic monitoring and targeting, boilers, heat pumps for space heating, motors and drives, zone controls for heating and ventilation, lighting, insulation, solar thermal, heaters and refrigeration. The eligible technologies are covered by the Energy Technology List or ETL.
Low Emission Cars and Gas and Hydrogen Refueling Infrastructure
Businesses can claim 100 % first year allowances on purchases made between 17 April 2002 and 31 March 2008 on new cars not exceeding 120 grams CO2 per kilometre and equipment for refueling vehicles with natural gas or hydrogen. This scheme has now expired. There is however, tax relief available for those driving company cars with either zero emissions or emissions less than 75 grams CO2 per kilometre. Further information can be obtained from a qualified accountant.
Water Conservation Plant and Machinery
As with energy, the ECA scheme offers 100 % tax relief against selected water efficient plants and machinery. The scheme, governed by the Department for Environment, Food and Rural Affairs (DEFRA), HMRC and AEA Technology, can bring a positive environmental and finance benefit to any company considering investing in new equipment. The Water Technology List, or WTL, covers monitoring and control equipment, efficient,taps, showers, toilets and washing machines, flow controllers, rainwater harvesting equipment, industrial cleaning equipment, water re-use systems, vehicle wash systems, slurry and sludge de-watering equipment and water management equipment.
What are the benefits?
Are there any drawbacks?
The scheme is considered to have no drawbacks, whilst it requires certain level of attention to the continually changing list of eligible equipment.
Who is eligible?
All businesses that pay UK income or corporation tax, regardless of their size, sector or location are eligible for Enhanced Capital Allowance scheme.
How do I claim ECA's?
Allowances are then claimed through your corporation tax or self-assessment return. For more information and help on calculating and claiming ECA please see the Business Link.