Enhanced Capital Allowances

Introduced back in 2001, the scheme allows businesses to claim 100% first-year tax relief on investments made in eligible products and technologies. This means the company can write off (deduct) the entire cost of purchasing the energy-saving product against its taxable profits in the purchase year.

Advantages of the Enhanced Capital Allowance scheme

Companies benefit from ECA tax relief by reducing their associated costs. Cash flow for the year in which the technology was purchased is improved, which in turn cuts down the time required to pay back the investment. A further benefit of course is that in using the new equipment, companies will immediately begin reducing the impact of their business activities on the environment.

Only new plant and machinery is applicable when it comes to the ECA scheme. Any used or second-hand products will not be eligible.

Energy products that qualify for Enhanced Capital Allowances

Business can only achieve tax relief under the Enhanced Capital Allowance (ECA) energy scheme for specified technologies. Eligible products that make up these technologies must meet certain strict criteria as set out on the government’s Energy Technology List (ETL).

The technology categories covered by the ETL are:

• Automatic monitoring and targeting (AMT) equipment (this includes portable and component-based systems)
• Boiler equipment (includes biomass boilers, room heaters, hot water and steam boilers, flue gas economisers and condensing water heaters)
• Combined heat and power (CHP)
• Compressed air equipment (includes master controllers and flow controllers)
• Energy recovery (air-to-air)
• Heat pumps (includes water source, air source and ground source heat pumps)
• High-speed hand air dryers
• HVAC equipment for heating, ventilation and air-conditioning (includes close control air conditioning and HVAC zone controls)
• Installing pipework
• Lighting (includes lighting controls, high-efficiency lighting units and white-light emitting diode units)
• Motors and drives (includes variable speed drives, switched reluctance drives, integrated motor drive units, and both multiple and single speed motors)
• Refrigeration equipment (this includes cellar cooling equipment, air-cooled condensing units, automatic air purgers and refrigerated display cabinets plus fittings)
• Solar-powered systems producing heat
• Uninterruptible power supplies

Warm air and radiant heaters (this includes packaged warm air heaters, biomass fire warm air heaters and overhead radiant heaters)

Is this list ever updated?

Yes. The list and eligibility criteria are reviewed once a year so that technological developments can be taken into consideration. Products that are included on the ETL are easily identifiable as they should display the ETL symbol.

ECAs are not applicable on the costs relating to plant and machinery for use in a domestic property that is leased out either in the UK or overseas. However, products purchased for use within common parts may be eligible.

Water technologies eligible for Enhanced Capital Allowance

Enhanced Capital Allowances (ECAs) are applicable to products and technologies that adhere to the specific criteria that the scheme sets out. They must appear on the Water Technology List (WTL) at the time of purchase, as ECA cannot be claimed for products that are added to the WTL afterwards.

Here are the technology areas included on the WTL:

• Cleaning-in-place equipment (this is control and monitoring equipment, and spray devices)
• Efficient showers - these might be auto shut-off showers, aerated showerheads, low-flow showerheads, flow regulators and thermostatic showers
• Efficient taps (for example electronic taps, spray taps, automatic shut-off taps and low-flow screw-down/lever taps)
• Efficient toilets - this includes low-flush toilets, urinal controls and retrofit WC flushing devices
• Efficient washing machines (both industrial and commercial)
• Flow controllers (flow-limiting and control devices)
• Greywater equipment for recovery and reuse
• Leakage detection equipment - this may include pressure-reducing valve controllers, data loggers, leak-warning devices and remote meter-reading
• Meters and monitoring equipment (including water management software and flow meters)
• Rainwater harvesting equipment - such as monitoring and control equipment, rainwater storage vessels and rainwater filtration equipment
• Small-scale sludge and slurry dewatering equipment - such as centrifuge, filter press and belt press equipment
• Vehicle-wash water reclaim units - (full or partial reclaim systems)
• Water efficient industrial cleaning equipment - steam cleaners and scrubber/driers (both ride-on and walk-behind machines)
• Water management equipment required in mechanical seals - this includes internal flow regulators, seal water recycling units plus monitoring and control units
• Water reuse systems

The WTL is updated with new products on the first day of every month. An annual review is also carried out to include new technologies. Remember that products which are included on the WTL will display the WTL symbol.

Water reuse systems

Water reuse 'systems' are regarded slightly differently to 'products' when it comes to ECAs.

Water reuse technology on the WTL has two sub-technologies:

• Wastewater recovery and reuse
• Efficient membrane filtration equipment

As this type of technology is often bespoke in nature, both types are eligible for ECAs although each individually installed system must be certified. This is instead of using the standard product list designed for other technologies on the WTL.

How to claim for an Enhanced Capital Allowance

Companies need to make a claim for energy saving equipment in the same way that they would claim their other first-year tax allowances. It’s done through an income tax self-assessment or via an organisation’s corporation tax self-assessment return.

The process for claiming the Enhanced Capital Allowance can be tricky and it’s important to get it right. As mentioned, the scheme provides a 100% first-year allowance for investments in specific energy-efficient plant and machinery. Businesses are able to write off the entire cost of eligible plant products against their taxable profits so getting a claim wrong can prove incredibly costly.

Speak to the experts at Myriad Associates

When it comes to the Enhanced Capital Allowance scheme we are experts in our field. At Myriad Associates we deal solely with research and development tax reliefs and have years of expertise at our fingertips.

If you have any questions about ECA or anything else regarding R&D projects happening in your company, call us today on 0207 118 6045 or use our contact page for personal, tailor-made advice.