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

Go the Carbon Trust to download A guide to equipment eligible for Enhanced Capital Allowances