ECA tax incentives for energy saving drives
The Government’s Enhanced Capital Allowances (ECAs) gives businesses a straightforward way for a business to improve its cash flow through accelerated tax relief.
The ECA Scheme for Energy Saving Technologies encourages businesses to invest in energy-saving plant or machinery. The Government’s Energy Technology List (ETL), is managed by the Carbon Trust, and lists approved equipment
Write-off in year of purchase
The ECA scheme allows businesses to write-off the equipment cost against taxable profits in the year of purchase. This can provide a cash flow boost and an incentive to invest in ETL specified energy-saving equipment. This normally carries a price premium when compared to less efficient alternatives.
So, if your business pays corporation or income tax at 20%, every £10,000 spent on qualifying equipment would reduce its tax bill in the year of purchase by £2,000. In contrast, for every £10,000 spent, the generally available capital allowance for spending on plant and machinery
would reduce your business’s tax bill in the year of purchase by £360. In other words, an ECA can provide a cash flow boost of £1,640 for every £10,000 it spends in the year of purchase.
Available to loss-making companies
Loss-making companies can now also realise the tax benefit of their investment in ETL qualifying technologies with Payable ECAs by surrendering losses attributable to ECAs in return for a cash payment from the Government.
The amount paid to the company claiming payable ECAs is 19% of the surrendered loss.
So, if a company surrenders a loss of £100,000, the Payable ECA it will receive is £19,000.
ECAs are payable in the year of the claim, and capped at £250,000. Companies cannot claim more than the total of the company’s PAYE and National Insurance payments.
Inverter drives from Schneider, Mitsubishi, Omron and IMO are on the Energy Technology List
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