What is the ECA scheme?
The Enhanced Capital Allowance (ECA) scheme enables companies to claim a 100% first year capital allowance on investments in certain energy saving equipment appearing on the Energy Technology List (ETL), against the taxable profits of the period of investment.
Capital allowances enable businesses to write off the capital cost of purchasing new equipment including compressors, ancillary equipment such as dryers and energy saving electronic controllers, against their taxable profits.
Additional benefits of purchasing ECA qualifying energy efficient technologies could include: improved cash flow, lower energy bills, reduction in Climate Change Levy or CRC payment.
HMRC's tax relief for capital allowances.
Tax Relief Rates
Claim values will depend on the Corporation Tax rates for the business.
HMRC's information on Corporation Tax rates
General Capital Allowances
The general rate of capital allowances is 18% a year on a reducing balance basis. If a business spent £10,000 on a new electric motor, claimed a standard capital allowance at the 18% rate and paid 21% corporation tax (refer to previous link) then the tax relief would be £378 in the first year. Further tax relief could be claimed in subsequent years.
Enhanced Capital Allowances (ECA)
If however the business invested in a higher efficiency motor or inverter and the actual equipment such as a compressor, dryer, controller, etc. is listed on the Energy Technology List (ETL) then a claim for Enhanced Capital Allowance can be made. Based on the previous illustration of £1000 the ECA scheme would provide a one-off 100% tax relief of £2100.
Where the listed equipment is a component product then the claim values on based on other criteria such as nominal kW in the case of a high efficiency motor. It is therefore essential to ascertain if the product is listed and therefore the total invoice value can be claimed or whether the component of the product is listed and therefore a specific value can be claimed.
Where more than 1 qualifying component is integrated within equipment such as an high efficiency motor and an inverter, the claim values can be combined as the total allowance.
Follow the steps in the ETL Eligibility under the Claim Values section to ascertain your specific allowances.
For a product to be eligible for ECAs it must meet specific energy saving eligibility criteria. There are several different technology categories included on the ECA scheme and many of which are sub-divided into sub-technology categories.
The eligibility criteria for each category is reviewed each year and updated to reflect technological and market developments. New technology categories can be added to the scheme each year following approval by the Department of Energy and Climate Change (DECC), Her Majesty's Revenue and Customs (HMRC) and the Treasury.
As well as determining eligibility for an ECA, the criteria can be used by businesses and manufacturers to enhance specifications and aid product development.
Further information on the benefits of capital allowances can be found via the linked pdf:
ECA 272 - The Enhanced Capital Allowances scheme
Power System - Energy Efficient Products
Newton: Direct Driven Screw Compressors
Edison: Variable Speed Direct Driven Screw Compressors
Galileo: Permanent Magnet Direct Driven Screw Compressors