Enhanced Capital Allowances

What are Enhanced Capital Allowances (ECAs)

ECAs are a tax relief given through the tax system by reducing the taxable profits of the business and this is the first time that ECAs have been introduced for use to support energy efficiency. The ECA scheme enables a business to claim capital allowances on their spending and investment on qualifying plant and machinery. The plant and machinery categories include:

  • Air to air energy recovery
  • Automatic monitoring and targeting
  • Boilers
  • Combined heat and power
  • Compact heat exchangers
  • Compressed air equipment
  • Heat pumps for heating space
  • HVAC zone controls
  • Lighting
  • Motors
  • Pipework insulation
  • Refrigeration equipment
  • Solar thermal systems
  • Thermal screens
  • Variable speed drives
  • Warm air and radiant heaters

A business can claim 100% first year capital allowances on their investment/spending on new products, in one of the above plant and machinery categories, during the year which expenditure is incurred.

 

How ECAs Work

ECAs allow the costs of capital assets to be written off against a business’s taxable profits. They take the place of depreciation charged in the commercial accounts which is not allowed for tax.

ECAs can provide a cash flow boost and shortened payback period, due to the reduction of a business’ tax bill, in the year in which the investment is made and it can also be set against profits of a period of time earlier than would otherwise be possible.

ECAs can be claimed on capital expenditure incurred on the provision of plant and machinery for use in a business’s trade. To claim an ECA, Legislation sates that the person incurring the expenditure owns the plant or machinery as a result of the expenditure. Some assets will not qualify for ECAs. These include assets that are buildings or structures as defined by sections 21 to 23 Capital Allowances Act 2001.

For more further or specific information please visit the ECA website: https://etl.decc.gov.uk/etl/site.html

How to claim ECA’s

Claims for ECAs are made using the Corporation Tax Return for companies and the Income Tax Return for individuals and partnerships. The Inland Revenue’s guidance on the ECA scheme can be found at http://www.hmrc.gov.uk/manuals/camanual/Index.htm

The Inland Revenue administers claims for ECAs and they have rights to investigate any aspect of the return. If errors are identified, any tax underpaid may be recovered with interest and, in cases of negligent or fraudulent conduct, penalties. Penalties cannot exceed 100% of the tax that would otherwise have gone unpaid.

Claims must be based on the costs incurred. Where you have purchased a qualifying product that is not already incorporated into a larger item of plant and machinery you must use the price paid for the item as the base of your claim. If you have purchased a qualifying product which is incorporated into a larger piece of equipment, the eligible claim value is provided in the Claim Values section of the ECA website: http://www.eca.gov.uk/etl/claim/claimvalues.htm. The remainder of the equipment can attract capital allowances at the normal (rather than the Enhanced) rates.

General information on all aspects of ECAs is available on the Business Link website:

http://www.businesslink.gov.uk/bdotg/action/layer?r.i=1084222835&r.l1=1079068363&r.l2=1086021901&r.l3=1084222686&r.s=sc&r.t=RESOURCES&topicId=1084222686

 

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