Government ECA scheme
What is the ECA scheme?
The Enhanced Capital Allowance (ECA) scheme enables businesses to claim a 100% first year capital allowance on investments in certain energy saving equipment, against the taxable profits of the period of investment.
Capital allowances enable businesses to write off the capital cost of purchasing new plant or machinery (e.g. boilers, motors), against their taxable profits.
The general rate of capital allowances is 18% a year on a reducing balance basis. Some technologies supported by the ECA Scheme (e.g. boilers, lighting) are included in a special capital allowances pool where the general rate of capital allowances is 8%.
If a business spent £1000 on a new electric motor, claimed a standard capital allowance at the 18% rate and paid 24% corporation tax (other rates exist, see HMRC) then the tax relief would be £43.20 in the first year. Further tax relief could be claimed in subsequent years. If however the business invested in a higher efficiency motor listed on the Energy Technology List then it could claim an Enhanced Capital Allowance, giving a one-off 100% tax relief of £240.
Additional benefits of purchasing ECA qualifying energy efficient technologies could include: improved cash flow, lower energy bills, reduction in Climate Change Levy or CRC payment. Further information on the benefits of capital allowances are given in ECA 272 - The Enhanced Capital Allowances scheme.
Give yourself a break - investing in energy-saving equipment does more than just save your business money. It's often more tax efficient.
How it works
If your business pays corporation tax at 28%, every £1,000 spent on qualifying equipment would reduce its tax bill in the year of purchase by £280. In contrast, for every £1,000 spent, the generally available capital allowance for spending on plant and machinery would reduce your business' tax bill in the year of purchase by £56. In other words, an ECA can provide a cash flow boost of £224 for every £1,000 it spends in the year of purchase.
For more information about the scheme, read the ECA scheme for energy-saving technologies brochure or visit the ECA website to check the eligibility of equipment via the Energy Technology List (ETL).
If your business purchases a new ECA compliant Air-conditioning system to replace an older less efficient system with a combined installation cost of £55,000.
Labour and Materials £20,000
Design and delivery £5,000
GIVING A PROJECT TOTAL OF £55,000
You have company profits of £500,000 resulting in a Tax bill of £140,000, this tax bill would be reduced by the project cost being taken from the operating profits down to £445,000 thus reducing the tax bill to £124,600.
Giving a saving to your tax bill of £15,400