The Enhanced Capital Allowance (ECA) Scheme was brought in by the Government to encourage businesses to switch to energy saving technologies that are listed on the Energy Technology List (ETL).
The ECA scheme allows business to write off 100% of the cost of the equipment against their taxable profit in the year of purchase. This can provide the business with a cash flow boost as well as encouraging it to invest in energy saving equipment which usually carries a price premium over less efficient alternatives. Its it the ETL that specifies the energy saving technologies that are included in the ECA Scheme.
For example if you business pays income tax or corporation tax at 21% , every £10k spent on qualifying equipment would reduce it would reduce its tax bill in the year of purchase by £2100. In comparison , for £10k spent. the generally available capital allowance for spending on plant and machinery would reduce the business tax bill by £378 in the year of purchase. By using the Scheme you can boost your cash flow by £1722 for every £10k it spends in the year of purchase.
Check its on the Energy Technology List (ETL)
The ETL is made up of two lists, the Energy Technology Criteria List (ETCL) and the Energy Technology Product List (ETPL). the ETCL is the performance criteria that ECA qualifying equipment must meet. And the ETPL is the register of equipment that has been assessed to meet the criteria of the ETCL.
There are is some equipment that is covered by the ECA but that is not listed on the ETPL. These are Automatic Monitoring and Targeting (AMT) systems, lighting equipment and pipework installations. Businesses must get confirmation from their installer that this equipment complies with ETCL criteria before purchasing.
Combined Heat& Power (CHP) equipment is also not listed on the ETPL. If a business wants to claim a CHP system under ECA then they have to get their equipment design assessed and be issued with a DECC certificate of efficiency.
There are over 16,000 energy saving products listed on the ETPL. Below is a list of the sort of products relevant to the hospitality industry but it is not a definitive list.
Automatic Monitoring & Targeting Systems
Biomass Boilers and Roomheaters
Hot Water Boilers
Retrofit Burner Control Systems
Combined Heat and Power
Desiccant Air Dryers with Energy Saving Controls
Air Source: Air to Water Heat Pumps
Heat Pump Driven Air Curtains
Building Environment Zone Controls
Close Control Air Conditioning Equipment
High Speed Hand Air Dryers
High Efficiency Lighting Units
White Light Emitting Diode Lighting Units (LED)
Biomass Fired Warm Air Heaters
Radiant Heating Equipment
Warm Air Heating Equipment
Cellar Cooling Equipment
Curtains, Blinds, Doors and Covers for Refrigerated Display Cabinet
Professional refrigerated storage cabinets
Refrigerated Display Cabinets
Refrigeration System Controls
Solar Thermal Systems and Collectors
Uninterruptible Power Supplies
Reduce Your Operating Costs
It is easy to do and we have all done, we often buy on price, however, immediate cost savings could prove to be more expensive in the long term. When purchasing consider the future operating costs of the equipment can help you make the correct investment decision.
ETL equipment is more efficient, reduces energy costs which leads to reduced Climate Change Levy payments and shortens the ROI time, which all reduce your operating costs. So always look out for the ETL logo when you are going through your procurement process.
How to we claim ECA
ECA is claimed on business tax return in the same way as ordinary Capital Allowances are. The process is straightforward but it is always best to talk to your accountant so that they know you have made a qualifying purchase. You can claim ECA on the cost of qualifying equipment as transportation to site and direct installation costs.
Even if you business is loss making you surrender your losses attributed to ECA’s in return for a cash payment from the Government. At the present you get 19% of the loss that you surrender, so for example if you surrender £10k of losses then the Payable ECA you receive will be £1.9K.
By claiming ECA’s you are also putting extra value on your business and should be part maximising its value for when you plan to exit.
As always check your accountant and more information is available on the HMRC website.