ECA Government Grants

A higher standard of energy-saving

Capital allowances enable businesses to write off the capital cost of purchasing plant and machinery, for example equipment such as air source heat pumps, against their taxable profits. They take the place of depreciation charged in commercial accounts
If, the business invested £1000.00 in a high efficiency heat recovery air conditioning system from the Energy Technology Product List, it could claim an 100% first-year capital allowance of £1,000 against the taxable profits of the year of investment. Assuming the company pays corporation tax at 28% the effect of the first-year allowance would be to reduce the business’s tax bill by £280 (£1,000 @ 28%). Thus, the first-year allowance can confer a cash flow advantage.

The 100% first-year capital allowance relieves all the qualifying spending. Therefore there is no unrelieved spending to carry forward against profits of later years.

What equipment is eligible?

Enhanced Capital Allowances (ECAs) can only be claimed on energy-saving products that meet the relevant criteria for their particular technology group – as detailed on the Energy Technology Criteria List (ETCL).

The criteria on the list are reviewed each year, to reflect technological advances and market changes. New technology groups might also be added as part of the annual review but they must have the approval of the Department for Environment, Food and Rural Affairs (DEFRA), Her Majesty’s Revenue and Customs (HMRC) and the Treasury.

The list of qualifying products, within each technology, is updated each month to include any new or modified products that meet the criteria.

Which technologies and products qualify for ECAs?

An up-to-date list of the technologies that qualify for the allowance can be found on the Energy Technology Product List (ETPL). The groups currently on it are:

An immediate cash-flow boost
An ECA provides 100% tax relief on any investment in energy-saving equipment, in the same tax year as the purchase is made. This means a business paying corporation tax at 28% will receive 28p tax relief for every £1 invested in energy-saving products.

If the equipment isn’t on the Energy Technology Product List (ETPL), or doesn’t meet the relevant criteria, the most a company can claim is 20% tax relief, which works out at only 5.6p for every £1. So, in effect, an ECA provides a cash-flow boost of 22.4p for every pound invested.

The financial benefit will be different if a company is paying income tax, or if it has a different marginal rate of corporation tax.

Another benefit of the scheme is that it reduces the payback period on the initial investment.

Lower long-term energy costs
As well as the added tax incentive, investing in energy-saving equipment could reduce a company’s energy bills, as it has lower running costs. This will also reduce a company’s Climate Change Levy (see the graph below), so there are significant long-term savings to be made from the initial investment.






Claiming an Enhanced Capital Allowance (ECA)

ECAs are claimed in the business’s income tax or corporation tax return the same way as other capital allowances. The documentation you need to make an ECA claim depends on the type of energy-saving equipment purchased. This section will tell you all you need to know about making an ECA claim for products from different technology categories.

Technology types
There are two different groups of energy-saving technology that qualify for an ECA.

Listed products meet the criteria presented in the Energy Technology Criteria List (ETCL) and are listed on the Energy Technology Product List (ETPL).

Non-listed products also meet the ETCL but are not listed on the ETPL.

While the process of claiming an ECA is always the same, the steps you need to take to make a valid claim can vary. The table below shows which technology groups are listed and which are not, and indicates what additional documentation is needed to support an ECA claim.

Some products that don’t qualify for an ECA might have one or more components that do. For these, there will be a claim value to show how much of the total cost is eligible for an ECA. Find out more about claim values.

How do you claim an ECA?
ECA claims should be submitted as part of your normal corporate or income tax return.

It’s important to retain all documents relating to your ECA claim, including invoices, dated screen prints from the ECA website and anything from the company that installs the equipment. HMRC may investigate any aspect of a tax return and you should have all necessary evidence to hand to support your claim.

For more information please refer to  HM Revenue and Customs (HMRC) and the links below:

CA20000 - Plant and Machinery Allowance (PMA)
CA23100 - PMA: First year allowance (FYA)