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The Enhanced Capital Allowance (ECA) scheme aims to encourage companies to invest in cleaner, greener and more efficient technologies. Introduced back in 2001, the scheme allows businesses to claim 100% first-year tax relief on investments made in eligible products and technologies. This means the company can write off (deduct) the entire cost of purchasing the energy-saving product against its taxable profits in the purchase year.
Companies benefit from ECA tax relief by reducing their associated costs. Cash flow for the year in which the technology was purchased is improved, which in turn cuts down the time required to pay back the investment. A further benefit of course is that in using the new equipment, companies will immediately begin reducing the impact of their business activities on the environment.
Only new plant and machinery is applicable when it comes to the ECA scheme. Any used or second-hand products will not be eligible.
Business can only achieve tax relief under the Enhanced Capital Allowance (ECA) energy scheme for specified technologies. Eligible products that make up these technologies must meet certain strict criteria as set out on the government’s Energy Technology List (ETL).
The technology categories covered by the ETL are:
Warm air and radiant heaters (this includes packaged warm air heaters, biomass fire warm air heaters and overhead radiant heaters)
Yes. The list and eligibility criteria are reviewed once a year so that technological developments can be taken into consideration. Products that are included on the ETL are easily identifiable as they should display the ETL symbol.
ECAs are not applicable on the costs relating to plant and machinery for use in a domestic property that is leased out either in the UK or overseas. However, products purchased for use within common parts may be eligible.
Enhanced Capital Allowances (ECAs) are applicable to products and technologies that adhere to the specific criteria that the scheme sets out. They must appear on the Water Technology List (WTL) at the time of purchase, as ECA cannot be claimed for products that are added to the WTL afterwards.
Here are the technology areas included on the WTL:
The WTL is updated with new products on the first day of every month. An annual review is also carried out to include new technologies. Remember that products which are included on the WTL will display the WTL symbol.
Water reuse 'systems' are regarded slightly differently to 'products' when it comes to ECAs.
Water reuse technology on the WTL has two sub-technologies:
As this type of technology is often bespoke in nature, both types are eligible for ECAs although each individually installed system must be certified. This is instead of using the standard product list designed for other technologies on the WTL.
Companies need to make a claim for energy saving equipment in the same way that they would claim their other first-year tax allowances. It’s done through an income tax self-assessment or via an organisation’s corporation tax self-assessment return.
The process for claiming the Enhanced Capital Allowance can be tricky and it’s important to get it right. As mentioned, the scheme provides a 100% first-year allowance for investments in specific energy-efficient plant and machinery. Businesses are able to write off the entire cost of eligible plant products against their taxable profits so getting a claim wrong can prove incredibly costly.
When it comes to the Enhanced Capital Allowance scheme we are experts in our field. At Myriad Associates we deal solely with research and development tax reliefs and have years of expertise at our fingertips.
If you have any questions about ECA or anything else regarding R&D projects happening in your company, call us today on 0207 118 6045 or use our contact page for personal, tailor-made advice.