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 SAVE MONEY WITH ENHANCED CAPITAL
ALLOWANCE
Enhanced Capital Allowances
(ECA's) are a tax relief given through the tax system by reducing and taxable
profits of the business. The ECA scheme builds on existing statutory provisions,
under which businesses may obtain tax relief, in the form of capital allowances,
for the investment in plant and machinery - this includes air conditioning and
refrigeration equipment.
Capital Allowances allow
the costs of capital assets to be written off against a business's taxable
profits. They take the place of depreciation charged in the commercial accounts
which is not allowed for tax. The main rate of allowances for plant and
machinery is 25% a year on the reducing balance basis, which spreads the benefit
over a number of years (about 95% of the cost is relieved in 8 years).
ECA's have been granted in
other areas before but this is the first time that they have been introduced for
use to support energy efficiency. ECA's enable businesses to claim 100% first
year capital allowances on their investment in designated energy saving air
conditioning and refrigeration machinery in the year in which the expenditure is incurred. ECA's bring
forward relief, so that it can be set against profits of a period earlier than
would otherwise be the case. The benefits to businesses of ECA's is thus a cash
flow boost resulting from the reduction of the business's tax bill of the year
in which the investment is made.
Capital allowances can be
claimed on capital expenditure incurred on the provision of air conditioning and
refrigeration machinery
for use in a business's trade. It is a requirement of the legislation that as a
result incurring the expenditure the machinery or plant belongs to the person
making the claim.
More information can be
found at the ECA web site:
www.eca.gov.uk
How to Claim
Claims for air conditioning and refrigeration 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 Revenues' guidance
on the EGA scheme can be found at:
www.hmrc.gov.uk/capital_allowances/eca_guidance.htm
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