The Enhanced Capital Allowance (ECA) energy scheme provides tax allowances for energy saving products.
The scheme offers a 100 per cent first-year allowance for investments in certain energy saving plant and machinery. If you buy equipment that qualifies, you can write off, for example, 100 per cent of the cost against that year's taxable profits. This could save you a lot of money, as well as reduce your business' energy use, carbon footprint and climate change levy payments.
The ECA energy scheme supports a variety of energy saving technologies, such as energy efficient boilers, lighting, refrigeration equipment, and metering and monitoring systems. This guide explains how the scheme works, what energy saving products qualify, and how to claim an allowance.
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The ECA energy scheme aims to encourage businesses to invest in certain energy-saving technologies.
The ECA energy 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, for example, 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.
ECAs bring forward tax relief, so that you can set it against profits from a period earlier than would otherwise be the case. See the page in this guide on how to claim an ECA for listed energy saving products.
Only new equipment is eligible for an ECA, used or second-hand equipment does not qualify. Eligible equipment, and the criteria they have to meet, is published in the Energy Technology List. The criteria are reviewed annually to keep pace with technological progress. See the section below on products covered by the ECA energy scheme.
Using energy-saving equipment will help reduce your energy bills, saving your business considerable sums of money in the long term.
Claiming ECA tax relief will save your business even more money, improving your cashflow for the year that you invest in the new equipment. And using the equipment itself will help reduce the impact your business has on the environment.
You can only make claims for tax allowances under the ECA energy scheme for certain technologies. Qualifying products within these technologies must meet certain eligibility criteria specified on the Energy Technology List (ETL).
Please note that 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.
The categories of technology covered by the ETL are:
At Budget 2011 the government announced that the list of technologies that qualify for the energy-saving scheme will be revised to include one new technology: certain energy efficient hand dryers. The criteria for automatic monitoring and targeting equipment will also be revised. The changes to the scheme took effect from 1 October 2011.
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.
To claim an ECA, see the section below on how to claim an ECA for listed energy saving products.
For information about claiming ECAs for component-based AMT, CHP, lighting or pipework insulation, see the section below how to claim an ECA for non-listed energy saving products.
The ECA scheme provides a 100 per cent first-year allowance for investments in certain energy saving plant and machinery. It lets you write off , for example, deduct - 100 per cent of the cost of qualifying plant and machinery against 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 Self-Assessment tax return or your Corporation Tax Return.
If you need help making your claim for ECAs, you should contact your tax adviser or call the HM Revenue & Customs Self Assessment Helpline.
Some products, known as non-listed products, do not appear on the Energy Technology List (ETL) but do meet the criteria and still qualify for an ECA. See the section below on how to claim an ECA for non-listed energy saving products.
Some products on the ETL are designed to be incorporated into other items of plant or machinery. If this is the case, you will need to identify the proportion of your expenditure which can qualify for 100 per cent first-year allowance. This is known as the claim value.
The proportion of the cost of buying the plant and machinery that qualifies for 100 per cent first-year allowance will be the claim value amount specified in the ETL for the particular qualifying product that's been incorporated. The balance of the expenditure incurred does not qualify for 100 per cent first-year allowance, but it can still qualify for capital allowances at the relevant rate.
If you pay for the equipment in instalments, you will need to calculate the amount qualifying for 100 per cent first-year allowance at each stage. You should do this by comparing the total cost with the expenditure that will qualify for 100 per cent first-year allowances. You apply this fraction to each payment to get the part of each payment that qualifies for 100 per cent first-year allowances.
For example, you buy a piece of equipment costing £90,000 which incorporates a qualifying component. The claim value for the environmentally beneficial component is £18,000. If you pay for the equipment in three instalments - one of £40,000 and two of £25,000 - the calculations of which parts of the payments qualify for 100 per cent first-year allowances are as follows:
Some products, known as non-listed products, for a variety of reasons do not appear on the Energy Technology List (ETL). These are called non-listed products. There are four categories:
The process of claiming for non-listed products can vary according to which technology group the product falls into.
Remember that not all your supplier's products will necessarily be eligible for an ECA. So make sure you specify that as one of your requirements before buying.
A CHP scheme generates heat and power, usually electricity, simultaneously through a single process. To claim an ECA on CHP equipment, you need a Certificate of Energy Efficiency. This shows what percentage of the total investment qualifies for an ECA.
To qualify for a Certificate of Energy Efficiency, you must first get a Combined Heat and Power Quality Assurance (CHPQA) certificate. If you're going to use the certificate to claim an ECA, you should say so when you apply. The CHPQA administrator will then also issue the Certificate of Energy Efficiency and you can claim an ECA on the eligible part of your investment.
If the certificate is later revoked, you will need to amend the relevant tax return to withdraw any 100 per cent first-year allowance claimed.
High-efficiency lighting units are a combination of a light fitting (luminaire), one or more lamps, and associated control gear - assembled into a single packaged unit. It must be a packaged unit - separately the components don't comply with the ETL criteria.
To claim an ECA on new lighting equipment, ask the manufacturer or supplier to confirm that the products comply with the criteria and qualify for an ECA. You can use that confirmation to support your ECA claim.
To qualify for an ECA, pipework insulation products must comply with British Standard BS 5422, which specifies the thickness of insulation required for different circumstances. You should get written confirmation from your supplier that the pipework insulation and any attachments have been fitted in line with BS 5422. This should enable you to work out what percentage of your purchase qualifies for an ECA and submit your claim.
If you need help in making your capital allowances claim you can contact the HMRC Self Assessment Helpline or Carbon Trust Advice Line.