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ECA Government Tax Allowance Scheme

How does the ECA scheme work?

The Enhanced Capital Allowance (ECA) scheme enables businesses to claim 100% first-year capital allowance on investments in energy-saving equipment, against the taxable profits of the period of investment.

All businesses that incur qualifying spending can claim ECAs. ECAs bring forward the time that capital allowances are available for spending on plant and machinery thereby providing a cash flow advantage.

A higher standard of energy-saving
Capital allowances enable businesses to write off the capital cost of purchasing plant and machinery, for example equipment such as boilers and motors, against their taxable profits. They take the place of depreciation charged in commercial accounts .

The general rate of capital allowances is 20% a year on a reducing balance basis. For example, if a business spent £1,000 on a new boiler, it could claim capital allowances of £200 (20% of £1,000) against the taxable profits of the period of investment. Assuming the company pays corporation tax at 28%, the effect of the capital allowance for spending on the boiler in the period of investment would be to reduce the business’s tax bill by £56 (£200 @ 28%).