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Enhanced Capital Allowances: Energy Saving, Water Conservation, Low CO2 vehicles

By 29th April 2014No Comments

The Enhanced Capital Allowance (ECA) schemes are a key part of the government’s programme to manage climate change, and is designed to encourage businesses to make green investments.

There are three schemes for ECAs:

  • Energy-saving plant and machinery
  • Low carbon dioxide emission cars and natural gas and hydrogen refuelling infrastructure
  • Water conservation plant and machinery

Enhanced Capital Allowances (ECAs) enable a business to claim 100% first-year capital allowances on their spending on qualifying plant and machinery.  Businesses can write off the whole of the capital cost of their investment in these technologies against their taxable profits of the period during which they make the investment.  This can deliver a helpful cash flow boost and a shortened payback period.

Examples:

Water Conservation

  • Flow Controllers
  • Meters
  • Leakage detection
  • Efficient toilets & taps
  • Rainwater harvesting equipment

Cars with low C02 emissions

Enhanced Capital Allowances are available for capital spending from 17 April 2002 to 31 March 2008 on:

  • New cars with carbon dioxide emissions of not more than 120gm per kilometre driven for use in their business
  • Natural gas and hydrogen refuelling equipment at refuelling stations

Designated energy-saving plant and machinery

The Energy Saving ECA schemes allow businesses of all sizes investing in designated technologies that reduce energy consumption to write off 100 per cent of the cost against the taxable profits of the period during which the investment was made.

Energy Saving Equipment Scheme. Enhanced Capital Allowances (ECAs) can only be claimed on energy-saving products that meet the relevant criteria for their particular technology group – as detailed on the Energy Technology Criteria List (ETCL). The list of qualifying products, within each technology, is updated each month to include any new or modified products that meet the criteria.

Which technologies and products qualify for ECAs?

An up-to-date list of the technologies that qualify for the allowance can be found on the Energy Technology Product List (ETPL). The groups currently on it are:

  • Air-to-air energy recovery
  • Automatic monitoring and targeting (AMT)
  • Boiler equipment
  • Combined heat and power (CHP)
  • Compressed air equipment
  • Heat pumps for space heating
  • Heating ventilation and air con equipment
  • Lighting
  • Motors and drives
  • Pipework insulation
  • Radiant and Warm Air Heaters
  • Refrigeration equipment
  • Solar thermal systems
  • Uninterruptible Power Supplies (UPS)

Loss making Companies investing in Energy Saving Equipment

Where a company is in a loss making position they may be able to surrender their ECA’s in exchange for a cash payment from the government. This is particularly beneficial where the company’s tax losses cannot be relieved for a number of years because they have insufficient profits to absorb the losses.

The first year tax credit will be in in the form of 19% of the surrenderable loss, but the amount of the payable credit cannot be more than the greater of the Company’s total PAYE and NIC liabilities for periods ending in the chargeable period and £250,000.

A company may claim a payable first-year tax credit for a chargeable period if:

  • it incurs relevant first-year expenditure for a qualifying activity and has received an FYA in respect of that expenditure,
  • it makes a loss in carrying on the qualifying activity and that loss, or part of that loss, is surrenderable,
  • it is within the charge to corporation tax on the profits from that qualifying activity, and
  • it is not an excluded company in that chargeable period.

A company may surrender all or part of its surrenderable loss. Once a loss has been surrendered for a tax credit payment it is not available for relief in any other way.  Any losses carried forward to future accounting periods are reduced by the amount of loss surrendered for a first-year tax credit.

A first-year tax credit is not taxable income of the company.

Financing your equipment

Through the ‘Carbon Trust’ a government backed scheme, there are interest free loans available to purchase energy saving equipment. This is applicable to all small and medium-sized enterprises trading for at least 12 months. The loans available range from £3,000 – £100,000.

As with all government funded loans, there are several of the criteria to meet in order to be eligible. There are many projects that will be considered for a loan, including renewables.  Each project will be assessed on its potential to deliver real energy savings.

Our strategic partners specialise in helping commercial property owners claim thousands of pounds of tax refunds and relief that they didn’t realise they had.  For an introduction, please contact us