Enhanced Capital Allowances (ECA)
From Swikipedia
Introduction
Enhanced Capital Allowances (ECAs) enable a business in the United Kingdom to claim 100% first-year capital allowances on their spending on qualifying plant and machinery, including energy efficiency and low-carbon technologies. Businesses can write off the whole of the capital cost of their investment in these technologies against their taxable profits of the period during which they make the investment.
The Government introduced the ECA scheme in 2001 to encourage businesses to invest in low carbon, energy-saving equipment. There are three ECA schemes which provide enhanced tax relief for spending on equipment which has environmental benefits: energy-saving equipment, water-efficient equipment and low carbon dioxide emission cars.
Brief Description
Benefits:
The Enhanced Capital Allowance (ECA) scheme can bring significant financial savings, in the short and long-term, as well as improving a company’s energy-efficiency and its impact on the environment.
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. 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, so there are significant long-term savings to be made from the initial investment.
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