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 electric motor, claimed a standard capital allowance at the 18% rate and paid 23% corporation tax (other rates exist, see HMRC's information on Corporation Tax rates) then the tax relief would be £41.40 in the first year. Further tax relief could be claimed in subsequent years. If however the business invested in a higher efficiency motor listed on the Energy Technology List then it could claim an Enhanced Capital Allowance, giving a one-off 100% tax relief of £230.
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 on the ETL Website