What is the ECA scheme?
The Enhanced Capital Allowance (ECA) scheme enables businesses to claim a 100% first year capital allowance on investments in certain energy saving equipment, against the taxable profits of the period of investment.
Capital allowances enable businesses to write off the capital cost of purchasing new plant or machinery (e.g. boilers, motors), against their taxable profits. For more information on capital allowances, please see HMRC's page on tax relief for capital allowances.
The general rate of capital allowances is 18% a year on a reducing balance basis. Some technologies supported by the ECA Scheme (e.g. boilers, lighting) are included in a special capital allowances pool where the general rate of capital allowances is 8%.
If a business spent £1000 on a new fridge freezer, claimed a standard capital allowance at the 18% rate and paid 21% corporation tax (other rates exist, see HMRC's information on Corporation Tax rates) then the tax relief would be £37.80 in the first year. Further tax relief could be claimed in subsequent years. If however the business invested in a higher efficiency fridge freezer listed on the Energy Technology List then it could claim an Enhanced Capital Allowance, giving a one-off 100% tax relief of £210.
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.
Further information on the benefits of capital allowances are given in ECA 272 - The Enhanced Capital Allowances scheme (PDF, 2MB).
Eligibility Criteria and Claim Values
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, 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.