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The Carbon Trust
Enhanced Capital Allowances (ECAs) are a
straightforward way for a business to improve its
cash flow through accelerated tax relief. |  |
The ECA scheme allows businesses to write off the whole cost of the
equipment against taxable profits in the year of purchase. This can
provide a cash flow boost and an incentive to invest in energy-saving
equipment which normally carries a price premium when compared to
less efficient alternatives. The ETL specifies the energy-saving
technologies that are included in the ECA scheme.
So if your business pays corporation or income tax at 28%, every £1,000
spent on qualifying equipment would reduce its tax bill in the year of
purchase by £280. In contrast, for every £1,000 spent, the generally
available capital allowance for spending on plant and machinery¹ would
reduce your business’s tax bill in the year of purchase by £56. In other
words, an ECA can provide a cash flow boost of £224 for every £1,000 it
spends in the year of purchase².
www.carbontrust.co.uk | 1 | 20% a year on the reducing balance basis. | | 2 | ECAs provide 100% tax relief, so there is no further tax relief in later years. The general rate
of capital allowances does not provide 100% tax relief so there is a balance of spending to
carry forward on the reducing balance basis for relief in later years. |
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