A guide to utilising Enhanced Capital Allowances for your new workspace

Posted by Dieter Wood on 19/06/2017

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Enhanced Capital Allowances; how your business can benefit

Our clients want to ensure they provide the most comfortable and effective working environment for their team. We are frequently asked us how to provide the best technology available, whilst making it affordable, and this is where the Enhanced Capital Allowance (ECA) scheme comes in. 

In this article, we discuss how the Enhanced Capital Allowance scheme is a key tool in creating a cost-effective, and positive working environment. We explore what the ECA scheme is, how to utilise it, and we showcase a prime example.

What is the ECA scheme?

The ECA legislation was introduced in 2001 to give generous tax incentives for businesses to invest in energy-saving equipment within workplaces around the country. In order to qualify for these incentives, items of equipment must be included in the Energy Technology List (ETL) and adhere to the guidelines set by The Carbon Trust. 

The first year allowances let businesses set 100% of the cost of the assets against taxable profits in a single tax year. This means the company can write off the cost of the new plant or machinery against the business’s taxable profits in the financial year the purchase was made. 

An ECA is claimed through a business’s income or corporation tax return in the same way as any other capital allowance. HM Revenue and Customs is responsible for the tax-related aspects of the ECA scheme.

  • Air to air energy recovery
  • Automatic monitoring and targeting (AMT) equipment
  • Boiler equipment
  • Combined heat and power (CHP)
  • Compressed air equipment
  • Heat pumps
  • Heating, ventilation and air conditioning (HVAC) equipment
  • High speed hand air dryers
  • Lighting
  • Motors and drives
  • Pipework insulation 
  • Refrigeration equipment
  • Solar thermal systems
  • Uninterruptible power supplies
  • Warm air and radiant heaters
  • Waste heat to electricity conversion equipment 

What are the benefits?

The benefits of ECAs are immediately striking - 100% of the cost of the assets in the ETL list can be set again taxable profits, if you compare this to the typical writing down allowances of 8% or 18%, the difference is staggering. For most other capital expenditure, tax relief is typically spread over 20 or more years. 

We often recommend specific technologies that are on the ETL list that we know can be highly beneficial in creating the ideal working environment. For example, The Variable Refrigerant Flow (VRF) HVAC System, a highly efficient air conditioning system, that operates quietly and allows the user with full control over the temperature of their environment. We frequently recommend LED lighting systems to clients, the return on investment can be quick, and benefit the well-being and productivity of employees. LED lighting is glare-free, less tiring on eyes, and can be adjustable to suit personal preference, to create an effective and comfortable working environment. 

We often find that clients are understandably more susceptible to looking at investing in the lowest cost equipment for their new workplace. However, although this may appear to be the cheapest option, these immediate cost savings in the long run are generally not the most cost effective. We look at the longer-term perspective and life cycle cost of cheaper equipment, in order to enhance the additional cash flow benefits. 

Not only do ECAs have cash flow benefits, but they can also improve your building’s BREEAM (Building Research Establishment Environmental Assessment Method) rating and EPC rating, which can enhance and support environmental policies. In the long run, the maintenance costs of this energy-efficient technology can often save you money, along with significantly lower running costs.

Further Explanation 

We enlisted the help of one of the leading independent firms of Chartered Accountant and Business Advisors in the South West, Milsted Langdon, to help us explain. 

“We have worked with many clients and their project managers when refurbishing or relocating their office to maximise tax relief available from the ECA. These have ranged from small scale projects focusing on the replacement of a single existing asset, to large scale refurbishment projects for those clients who are moving premises, refurbishing existing buildings or undertaking significant capital expenditure. Understanding the available tax reliefs has helped clients make crucial investment decisions. 

One of the reasons ECA is so crucial to talk about, is because it’s often just not on a company’s radar. To illustrate the relief available, if a company spends £50,000 on qualifying ECA expenditure and pays corporation tax at 19%, the total corporation tax saving in year 1 is £9,500, making the effective cost of the technology £40,500. 

This contrasts with a qualifying spend of £50,000 where there is no available allowance to offset the expenditure. In year 1, the total corporation tax saving is £760, with continuing relief being given on a 8% reducing balance over the life of the asset for an integral feature such as a lighting system.” 

A prime example

Mike Borne, Project Manager at Interaction, explains how we worked with money.co.uk to utilise the scheme, and have a fundamentally positive impact upon their office refurbishment. 

“The Castle project for money.co.uk was a brilliant example of how the government's ECA scheme can benefit building owners, employers and employees. Incorporating highly efficient state of the art mechanical and electrical systems into a building can be a costly affair. The ECA scheme allows businesses to invest in the latest technology while writing off the cost against taxable profits, providing a cash flow boost as an incentive to invest. money.co.uk were able to take full advantage of this while simultaneously providing a far more comfortable working environment to their employees, which played a key role in their recruitment drive upon project completion. On top of this, the building owner has benefited from an M&E system which is designed to keep the two century year old castle in a good state of repair. This is all possible because ECA increases the affordability of this latest tech.”

Notably, utilising the ECA scheme can have significant positive benefits upon the cash flow of your business, and the costs of your new workspace. Furthermore, investing in advanced technologies aids in creating an environment that allows people to work effectively.