Enhanced capital allowances

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ECAs boost cashflow by allowing businesses to write off the whole cost of energy saving equipment against taxable profits in the year of purchase.

Enhanced Capital Allowances

Enhanced Capital Allowances (ECAs) are a straightforward way for a business to improve its cash flow through accelerated tax relief.

The ECA scheme encourages businesses to invest in technology and products specified on the Energy Technology List (ETL) which is managed by the Carbon Trust on behalf of Government.

The scheme allows businesses to write off the whole cost of the equipment against taxable profits in the year of purchase.

Profit Making Companies

If a profitable business pays corporation tax at 20%, every £100,000 spent on qualifying equipment would reduce its taxable profits tax bill in the year of purchase by £20,000.

In contrast, for every £100,000 spent, the generally available capital allowance for spending on plant and machinery would reduce the corporation tax bill in the year of purchase by £3,600. In other words, an ECA can provide a cash flow boost of £16,400 for every £100,000 it spends in the year of purchase.

Loss Making Companies

Loss-making companies can also realise a tax benefit from their investment in ETL qualifying technologies with payable ECAs by surrendering losses attributable to ECAs in return for a cash payment from the Government.

The amount payable to any company claiming payable ECAs will be expressed as 19% of the loss that is surrendered. So if a company surrenders a loss of £100,000, the payable ECA it will receive is £19,000. Note that the payable ECAs are capped. The maximum credit is limited to the minimum of £250,000 and the total of the company’s PAYE and National Insurance payments for the year in which the claim is made.

Eligible Technologies List (ETL)

For a product to be on the ETL, it must meet specific energy saving or energy efficient criteria.

Note that individual lighting products are not listed on the ETL. Purchasers need to obtain from the manufacturer/supplier a statement to say that the product supplied meets the eligibility criteria in force at the time of purchase. This can then form the basis of the supporting evidence for the tax claim.

Product categories include:

  • Air to air energy recovery
  • Automatic monitoring and targeting (AMT) equipment
  • Boiler equipment
  • Combined heat and power (CHP)
  • Compressed air equipment
  • Heat pumps
  • Heating, ventilation and air conditioning (HVAC) equipment
  • High speed hand air dryers
  • Lighting
  • Motors and drives
  • Pipework insulation
  • Refrigeration equipment
  • Solar thermal systems
  • Uninterruptible power supplies
  • Warm air and radiant heaters
  • Waste heat to electricity conversion equipment

Disclaimer – we are not tax advisers

This page is presenting information in the public domain for your convenience. We are not able to offer tax advice and we recommend you use your accountants and / or tax advisers to make any claim on your behalf.

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