Enhanced Capital Allowances (ECAs) were introduced to encourage the use of energy-saving and water conservation plant and machinery (P&M) in construction projects.
As a first-year allowance, ECA qualifying items provide a significantly increased tax saving over alternative allowances available on these items.
The adoption of ECA qualifying items may also improve a project's Building Research Establishment Environmental Assessment Method (BREEAM) ratings and contribute towards achieving an improved Energy Performance Certification (EPC) rating.
To qualify for ECA the item/s of plant and machinery must satisfy the following:
• The P&M must be unused in the operation of the business and not second hand.
• The P&M must be a listed product or meet the energy-saving or water conservation criteria specified by the Carbon Trust.
• The P&M expenditure must have been incurred after 1st April 2001.
Qualifying items include:
"Listed" ETL technologies:
Manufacturers must have products in these categories individually verified as meeting high energy efficiency performance standards. They are as follows:
• Air-to-air energy recovery
• Boiler equipment
• Compressed air equipment
• Heat pumps
• Heating, ventilation and air conditioning (HVAC) equipment
• High speed hand air dryers
• Lighting: white LED modules for backlit illuminated signs
• Motors and drives
• Portable energy monitoring equipment
• Radiant and warm air heaters
• Refrigeration equipment
• Solar thermal systems and collectors
• Uninterruptible power supplies
• Warm air and radiant heaters
• Waste heat to electricity conversion
“Unlisted” ETL technologies
Products in this category may not have been individually verified but must meet specified standards that demonstrate high energy efficiency performance.
• Automatic monitoring and targeting (AMT) systems
• Lighting: lighting controls; efficient white lighting units
• Pipework insulation
• Air to Air Heat Pumps, Split, Multi-Split and VRF pumps (incl. VRF)
Water Conservation Technologies
• Cleaning in Place Equipment
• Efficient Showers
• Efficient Taps
• Efficient Toilets
• Efficient Washing Machines
• Flow Controllers
• Leakage Detection Equipment
• Meters and Monitoring Equipment
• Rainwater Harvesting Equipment
• Small Scale Slurry and Sludge Dewatering Equipment
• Vehicle Wash Water Reclaim Units
• Water Efficient Industrial Cleaning Equipment
• Water Management Equipment for Mechanical Seals
For expenditure incurred from April 2012 onwards (or April 2014 for Combined Heat and Power), the enhanced relief available for ECA-qualifying items will not be available on items attracting feed-in tariffs or renewable heat incentives.
Payable ECA (Tax Credit)
If a UK taxpayer is making a loss, they may elect to take a payable tax credit in lieu of the 100% deduction available for ECA qualifying assets.
The payable credit equates to 19% Corporation tax, or 20 – 45% Individual tax of the amount spent on ECA eligible equipment.
The total amount of tax credit that can be granted in an accounting period is capped at £250,000 or the total employers National Insurance contributions paid by the claiming company during the accounting period when the ECA equipment was installed.
To qualify for P&M allowances, the UK taxpayer must own the plant, have installed it ready for use or be using it already in their trade and have incurred the expenditure on the plant. However, allowances may be available where they contribute towards the cost of qualifying items used by another in their trade / business.
No allowances are given for P&M or fixtures in a residential dwelling other than the common ways seen in HMO’s and multi residential blocks. These include all qualifying ETL’s in hallways, communal kitchens, gyms, car parks etc.
If you wish to find out more regarding your entitlement to Capital Allowances, please feel free to contact us via our contact form. Alternatively, our team can be reach using the phone number at the bottom of the page.