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. Air Conditioning, boilers, motors), against their taxable profits.
The general rate of capital allowances is 18% a year on a reducing balance basis. Some technologies supported by the ECA Scheme (e.g. Air Conditioning, 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 Air Conditioning system, claimed a standard capital allowance at the 18% rate and paid 24% corporation tax (other rates exist, see HMRC) then the tax relief would be £43.20 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.
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.