The Government introduced the Enhanced Capital Allowance (ECA) scheme in 2001 to encourage businesses to invest in low carbon, energy-saving equipment. It is designed to help the UK reach its Kyoto target of reducing carbon emissions by 20%. The main cause of climate change is carbon emissions produced by burning fossil fuels.
Around half of these come from businesses and industrial processes, so efforts to reduce emissions focus on these areas.
What does the ECA Energy scheme involve?
The scheme provides a tax incentive to businesses that invest in equipment that meets published energy-saving criteria. The Energy Technology List (ETL) details the criteria for each type of technology, and lists those products in each category.
Key Features of the ECA scheme
- Open to all businesses that pay UK corporation or income tax, regardless of size, sector or location.
- Provides 100% first-year capital allowances on investments in energy-saving equipment against taxable profits of the period of investment.
- All the products listed on the ETPL must meet the published energy-saving criteria.
- Only spending on new and unused energy-saving equipment can qualify for Enhanced Capital Allowances. Capital allowances are available for spending “on the provision of” plant and machinery. This can include certain costs arising as a direct result of the installation of qualifying plant and machinery such as; transport of the equipment to the site, and some direct installation costs.
- Enhance Capital Allowance Scheme – Benefits
- The ECA scheme can bring significant benefits in terms of immediate cash-flow and also a company’s energy efficiency and carbon footprint.