A quick guide to equipment eligible for Enhanced Capital Allowances for the investor & business owner.
Enhanced Capital Allowances,(ECAs) were introduced in 2001 and are a straightforward way for a business to improve its cash flow through accelerated tax relief.
The government, through The Carbon Trust, manages the ECA Scheme for Energy Saving Technologies which encourages businesses to invest in energy-saving plant or machinery specified on the Energy Technology List.
The list comprises ‘off the shelf’ environmentally friendly assets, and also lists those technologies which are bespoke in design, such as CHP solutions.
The ECA scheme means businesses can write off the whole cost of the equipment against taxable profits in the year of purchase. This is great for positive cash flow and an incentive to invest in energy-saving equipment which normally carries a price premium when compared to less efficient solutions.
One great feature for 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 payable to any company claiming payable ECAs will be expressed as 19% of the loss that is surrendered. So if a company surrenders a loss of £100,000, the Payable ECA it will receive is £19,000.
Payable ECAs are however capped. The maximum credit claimable is limited by the total of the company’s PAYE and National Insurance payments for the year in which the claim is made or, if greater, £250,000.
As mentioned before, The Energy Technology List (ETL) is comprised of two lists; the Energy Technology Criteria List (ETCL) and Energy Technology Product List (ETPL). The ETCL presents the energy-saving performance criteria that ECA qualifying equipment must meet. Whereas the ETPL is a register of products that have been assessed as being compliant with ETCL criteria. Component based Automatic Monitoring and Targeting (AMT) systems, lighting equipment and pipework insulation are not listed on the ETPL.
Spending on these types of equipment which meets ETCL criteria can qualify for an ECA. Businesses should seek confirmation from their installer that the equipment complies with ETCL criteria prior to purchase.
Combined Heat and Power (CHP) equipment is also not listed on the ETPL. However, in these instance businesses are required to verify ECA compliance by having their equipment design assessed and a DECC certificate of energy-efficiency issued. Further information on how to do this can be found on the ETL website at http://etl.decc.gov.uk/etl
For all other technologies, products are listed on the ETPL. The ETPL lists over 13,000 energy-saving products and you can check to see if your purchase qualifies by visiting http://etl.decc.gov.uk/etl
It would be prudent to look at the lifecycle costing of all assets, but businesses, such as yours, are often tempted to opt for equipment with the lowest purchase cost. Such immediate cost savings often prove to be a false economy. Considering the future operating cost of the equipment before investing can help make the right investment decision – one that reduces future expense. Investing in ETL equipment reduces operating
costs. Improved energy efficiency results in lower energy bills, reduced climate change levy payments and shortens payback periods. So the next time you’re thinking about investing in plant or machinery, think about future operating costs – not lowest purchase cost – and see your utility bills fall.
So, in summary, if your business is thinking of investing in energy-saving plant or machinery then the following technologies are specified in the ETL. The ETL is periodically reviewed and technologies can be added or removed. Within each technology area there can be multiple sub-technologies.
- • Air-to-air energy recovery.
- • Automatic monitoring and targeting (AMT).
- • Boiler equipment.
- • Combined heat and power (CHP).
- • Compressed air equipment.
- • Heat pumps for space heating.
- • Heating, ventilation and air conditioning (HVAC) zone controls.
- • High speed hand air dryers.
- • Lighting.
- • Motors and drives.
- • Pipework insulation.
- • Radiant and warm air heaters.
- • Refrigeration equipment.
- • Solar thermal systems.
- • Uninterruptible power supplies.