The UK government has introduced a tax relief as an incentive for businesses to move toward reducing their carbon footprint. These tax reliefs are called Enhanced Capital Allowances (ECAs) and they reduce the taxable profits of the business. The tax reliefs are for investment in plant and machinery, and are in addition to certain existing tax provisions for tax relief.
Under this scheme, the cost of certain assets can be written off against your business’s taxable profits. These ECAs have never been used before in support of energy efficiency, but have now been used as a tool to encourage businesses to invest in energy saving equipment.
Key Features of the ECA scheme
- The ECA scheme will apply to all UK corporation tax or income tax paying businesses, whatever their location, industry sector or size.
- The scheme provides 100% first-year capital allowances on investments in energy-saving equipment against taxable profits of the period in which it was bought. The scheme advises that in certain circumstances the transportation and installation costs can also be included under a capital allowance.
- In order to claim for ECAs all energy-saving equipment which can qualify under the scheme must be new and unused.
- The benefit to businesses of ECAs is that you receive a cash flow boost resulting from the reduction of the business's tax bill of the year in which the investment is made.
- Claims for ECAs are made in the same way as other capital allowances on the Corporation Tax Return for companies and the Income Tax Return for individuals and partnerships.
- The Inland Revenue's guidance on the ECA scheme can be found at https://www.gov.uk/capital-allowances
For information on the scheme, please see the site: www.eca.gov.uk/etl/