Enhanced Capital Allowances for efficient technologies
You can claim capital allowances when you buy things like equipment, machinery or business vehicles that you keep to use in your business. You can deduct some or all of the value of such plant and machinery items from your profits before you pay tax.
The Enhanced Capital Allowance (ECA) scheme offers a 100 per cent first-year allowance for investments in certain water efficient plant and machinery. It lets businesses write off 100 per cent of the cost of qualifying plant and machinery against taxable profits in the year of purchase. This can bring significant financial savings and reduce your business' impact on the environment.
This guide will help you understand how the ECA schemes for energy saving products and water efficient technologies work, what qualifies for an ECA and how to claim.
What is the Enhanced Capital Allowance scheme?
Enhanced Capital Allowance (ECA) schemes aim to encourage businesses to invest in efficient technologies. The scheme lets your business claim 100 per cent first-year allowances, ie tax relief, on investments in certain technologies and products.
The ECA scheme lets your business claim 100 per cent first-year tax relief on investments in qualifying technologies and products. This means you can write off, ie deduct, the whole cost, or up to the published claim value, of buying the energy-saving product against your taxable profits in the year of purchase.
Advantages of the Enhanced Capital Allowance scheme
Claiming ECA tax relief can help your business to reduce investment costs and its environmental impact. This improves your cashflow in the year that you invest in the new equipment and reduces the time it takes to pay back your investment. And using the equipment itself will help reduce the impact your business has on the environment.
Only new plant and machinery are eligible for an ECA; used or second-hand plant and machinery do not qualify.
Energy products eligible for Enhanced Capital Allowances
You can only make claims for tax allowances under the Enhanced Capital Allowance (ECA) energy scheme for certain technologies. Qualifying products within these technologies must meet certain eligibility criteria specified on the Energy Technology List (ETL).
The categories of technology covered by the ETL are:
- air-to-air energy recovery
- automatic monitoring and targeting (AMT) equipment - including component-based and portable systems
- boiler equipment - including hot water and steam boilers, biomass boilers and room heaters, condensing water heaters and flue gas economisers
- combined heat and power (CHP)
- compressed air equipment - including flow controllers and master controllers
- heat pumps - including air source, water source and ground source
- heating, ventilation and air conditioning (HVAC) equipment - including HVAC zone controls and close control air conditioning
- high-speed hand air dryers
- lighting - including high-efficiency lighting units, lighting controls and white-light emitting diode units
- motors and drives - including integrated motor drive units, variable speed drives, switched reluctance drives, and single speed and multiple speed motors
- pipework insulation
- refrigeration equipment - including air-cooled condensing units, cellar cooling equipment, automatic air purgers, and refrigerated display cabinets and fittings
- solar thermal systems
- uninterruptible power supplies
- warm air and radiant heaters - including overhead radiant heaters, packaged warm air heaters and biomass fire warm air heaters
The list and eligibility criteria are reviewed annually to take into account technological developments.
You can identify products which are included on the ETL as they should have the ETL symbol.
ECAs are not available on the cost of plant and machinery for use within a property used as a dwelling that you lease out in the UK or overseas. However, items bought for use within common parts may qualify.
Water technologies eligible for Enhanced Capital Allowances
Enhanced Capital Allowances (ECAs) are available on products and technologies that meet the specified criteria of the scheme and are included on the Water Technology List (WTL) at the time of purchase - you cannot claim an ECA on a product that is added to the WTL after you purchased it.
The following technology areas are included on the WTL:
- cleaning-in-place equipment - ie monitoring and control equipment, and spray devices
- efficient showers - ie aerated showerheads, auto shut-off showers, flow regulators, low-flow showerheads and thermostatic controlled showers
- efficient taps - ie automatic shut-off taps, electronic taps, low-flow screw-down/lever taps and spray taps
- efficient toilets - ie low-flush toilets, retrofit WC flushing devices and urinal controls
- efficient washing machines - ie efficient commercial and industrial washing machines
- flow controllers - ie control and flow-limiting devices
- greywater recovery and reuse equipment
- leakage detection equipment - ie data loggers, pressure-reducing valve controllers, and remote meter-reading and leak-warning devices
- meters and monitoring equipment - ie flow meters and water management software
- rainwater harvesting equipment - ie monitoring and control equipment, rainwater filtration equipment and rainwater storage vessels
- small-scale slurry and sludge dewatering equipment - ie belt press, centrifuge and filter press equipment
- vehicle-wash water reclaim units - ie partial or full reclaim systems
- water efficient industrial cleaning equipment - ie scrubber/driers (walk-behind and ride-on machines) and steam cleaners
- water management equipment for mechanical seals - ie seal water recycling units, internal flow regulators, and monitoring and control units
- water reuse systems
New products are added to the WTL on the first day of every month. The criteria for the WTL may be reviewed annually and can include the introduction of new technologies.
You can identify products which are included on the WTL as they can use the WTL symbol.
ECAs are not available on the cost of plant and machinery for use within a property used as a dwelling that you lease out in the UK or overseas - however, items bought for use within common parts may qualify.
Water reuse systems
Water reuse 'systems' are processed differently to 'products'.
Water reuse technology on the WTL has two sub-technologies:
- efficient membrane filtration equipment
- wastewater recovery and reuse
Due to their bespoke nature, these technologies are both eligible for enhanced capital allowances (ECAs) via a certification scheme for each individually installed system, rather than the standard product list used for other technologies on the WTL.
How to claim for an Enhanced Capital Allowance
The Enhanced Capital Allowance (ECA) scheme offers a 100 per cent first-year allowance for investments in certain efficient plant and machinery. It means you can write off, ie deduct, 100 per cent of the cost of qualifying plant and machinery against your taxable profits in the year of purchase.
You should claim ECAs for energy saving equipment in the same way that you claim other first-year allowances. This is through your income tax self-assessment or your corporation tax self-assessment return.
If you need help making your claim for ECAs, you should contact your tax adviser or call the HMRC Self Assessment Helpline on Tel 0300 200 3310.