Enhanced Capital Allowances (ECAs)
These allowances were introduced as an incentive for investment in energy efficient technologies and to reduce carbon emissions; 100% of all eligible expenditure can be set against profits.
Issue
The rise of the “green agenda” has seen many initiatives to encourage energy saving and reward investment in energy efficient technologies. All commercial properties are already being assessed for their energy efficiency with potential penalties for poor performance. Traditionally, energy efficient assets have been seen as too expensive to introduce; now with effective tax planning, complete asset life costs can be reduced considerably.
Relief
ECAs are available to purchasers who incur expenditure on new and unused qualifying energy and water efficient assets for the purposes of their trade. The relief is a 100% deduction from profits in the year of expenditure and can be matched easily against capital outlay. This relief can represent cash savings of 20% - 45% of the asset expenditure and has significant timing advantages.
Approach
We are a team of tax qualified property professionals with senior level experience at the Big 4 Accountancy firms. As a result, we understand the development issues, and all the tax and accounting aspects of construction projects. We are specialists who can work alongside your own tax and project advisers. Offering a complete service, we can undertake feasibility and entitlement reviews through to claim preparation and securing the best possible claims with HMRC.
Detail
The current qualifying technologies and assets include combined heat and power, lighting, pipework insulation, boiler equipment, motors & drives, solar thermal systems, refrigeration equipment, heat pumps, radiant and warm air heaters, compressed air equipment, air to air energy recovery, automatic monitoring and targeting, compact heat exchangers and water technologies.
A complete list of qualifying technologies is available on the Government websites: www.eca.gov.uk / www.eca-water.gov.uk
Opportunities
- Complete life cycle cost analysis should include capital, maintenance and energy costs coupled with both capital and revenue tax reliefs.
- For repetitive spend profiles, databases of asset comparisons can be established quickly and cost effectively to assist the specification process.
- Items such as lighting or refrigeration assets can represent a major cost for developers. ECAs entitlement in retail or process sectors can substantially increase project savings.
Example
Qualifying expenditure of £200,000:
| |
with ECAs | with no ECAs |
| Profits |
£1,000,000 | £1,000,000 |
| ECAs |
£(200,000) | |
| |
£800,000 | |
Tax payable
(at 23% large companies rate) |
£184,000 | £230,000 |
23% cash saving
= £46,000 |