• Enhanced capital allowances

    Maximising the benefits of using energy-saving plant and machinery

Enhanced capital allowances

Enhanced Capital Allowances (ECAs) legislation was introduced in 2001 to encourage the use of energy-saving plant and machinery, low carbon dioxide emission cars, natural gas and hydrogen refuelling infrastructure, and environmentally beneficial plant and machinery (e.g. water saving technologies).

As a 100% first year allowance, investment in ECA qualifying items provides a significantly increased tax saving over the alternative allowances available on these items. In addition, adoption of ECA qualifying items may also improve a project's Building Research Establishment Environmental Assessment Method (BREEAM) ratings and contribute towards achieving an improved Energy Performance Certification rating.

To qualify the item acquired must qualify as plant and machinery and must satisfy the following:

  • The plant and machinery must be unused and not second hand
  • The expenditure is incurred after 1 April 2001.
  • The plant must either be a listed product or meet the energy-saving or water conservation criteria specified by the Carbon Trust

Qualifying items include:

(a) Energy-Saving Technologies

  • Air to air energy recovery
  • Automatic Monitoring and Targeting
  • Boilers, including Biomass
  • Combined Heat and Power*
  • Compressed air equipment
  • Heat pumps for space heating, including ground source
  • HVAC zone controls
  • High Speed Hand Air Dryers
  • Lighting and controls
  • Motors & Drives
  • Pipework insulation
  • Radiant & Warm Air Heaters
  • Refrigeration Equipment
  • Solar thermal systems
  • Uninterruptible Power Supplies

(b) Water Conservation Technologies

  • Cleaning in Place Equipment
  • Efficient Showers
  • Efficient Taps
  • Efficient Toilets
  • Efficient Washing Machines
  • Flow Controllers
  • Leakage Detection Equipment
  • Meters and Monitoring Equipment
  • Rainwater Harvesting Equipment
  • Small Scale Slurry and Sludge Dewatering Equipment
  • Vehicle Wash Water Reclaim Units
  • Water Efficient Industrial Cleaning Equipment
  • Water Management Equipment for Mechanical Seals

Enhanced capital allowances and first year tax credits for capital expenditure on energy saving plant and machinery and environmentally beneficial plant and machinery was withdrawn from 1 April 2020 for corporation tax payers and 6 April 2020 for income tax payers.

The ECA website with further information on listed products and criteria is http://www.eca.gov.uk/.

* For expenditure incurred from April 2012 onwards (or April 2014 for Combined Heat and Power), the enhanced relief available for ECA-qualifying items will not be available in relation to items attracting feed-in tariffs or renewable heat incentives.

(c) Payable ECA (Tax Credit)

Subject to meeting qualifying conditions, if a company is loss making and is eligible to claim ECAs in respect of energy saving plant and machinery or environmentally beneficial plant and machinery, that company may surrender the qualifying loss for a first-year tax credit. The amount of the first-year tax credit is the lower of the relevant percentage of the surrenderable loss for the period and the upper limit. For periods before 1 April 2018 the relevant percentage was fixed at 19%. For chargeable periods starting on or after 1 April 2018, the relevant percentage was revised to 2/3 of the corporation tax chargeable for the relevant period. The upper limit for these purposes is the greater of the company’s total PAYE and National Insurance contributions liabilities for payment periods ending in the chargeable period of the company.

It is important to note that to qualify for P&M allowances, the taxpayer must own the plant, have installed it ready for use or be using it already in their trade and have incurred the expenditure on the plant. As such, the allowances are tapered back where a contribution towards the cost is received (landlord contribution or grant funding). Equally, allowances may be available where you contribute towards the cost of qualifying items used by another in their trade / business.

Also, no allowances are given for plant and machinery or fixtures in a dwelling (residential property). However, the common parts of a residential development which can include student accommodation, may qualify for allowances on qualifying expenditure on common parts (eg lifts).