Enhanced Capital Allowances

WHAT IS THE ECA SCHEME?

Well, the good news it the Enhanced Capital Allowance (ECA) scheme is part of the Government’s programme to manage climate change. The ECA Scheme for Energy Saving Technologies was introduced in 2001 and encourages businesses to invest in energy-saving plant or machinery specified on the Energy Technology List (ETL) which is managed by the Carbon Trust on behalf of the Government. So, it helps your businesses to invest and save energy.

THE BENEFITS

The ECA Scheme is open to all firms that pay UK corporation or income tax, and they are a straightforward way for a business to improve its cash flow through accelerated tax relief. The ECA scheme allows businesses to write off the whole cost of the equipment against taxable profits in the year of purchase. This can provide a cash flow boost and an incentive to investing energy-saving equipment which typically carries a price premium when compared to less efficient alternatives. So if your business pays corporation or income tax at 20%, every £10,000 spent on qualifying equipment would reduce its tax bill in the year of purchase by £2,000. By their nature, all technologies qualifying for an ECA are energy efficient and therefore automatically lead to significant long-term financial benefits to your business in addition to the tax rebate.

THE TECHY BIT

The Energy Technology List (ETL) details the criteria for each type of technology and lists those products in each category that meet them. Investment in LED lighting can qualify for Enhanced Capital Allowances if the products meet certain eligibility and performance standards. LCS Energy uses such products for all installations. For further information, click here (ECA list weblink). Only spending on new and unused energy-saving equipment can qualify for Enhanced Capital Allowances, which is available for spending “on the provision of” plant and machinery. This can include certain costs arising as a direct result of the installation of qualifying plant and machinery, such as transport of the equipment to the site and some direct installation costs.

HOW IT WORKS

It’s quite simple, but you will need a little help and assistance from your finance team, but as a simple process, following a site survey and energy audit, our team will identify energy-saving measures and improvements and match with an ECA compliant technology. Once agreed we would install the qualifying technologies and the ECAs are claimed in the same way as other capital allowances on the Corporation Tax Return for companies and the Income Tax Return for individuals and partnerships. Neither the product nor the installation needs to be provided with documentation to prove qualification for the Enhanced Capital Allowance provided the item is on the relevant Energy Technology Product List on the ECA website.

IT’S A TAXABLE BENEFIT, IT’S FOR ENERGY SAVING, IT’S COST EFFECTIVE.