What is Enhanced Capital Allowance?
Enhanced Capital Allowance is a straightforward way for a business to improve its cash flow through accelerated tax relief. The scheme encourages businesses to invest in energy saving plant (which includes air conditioning and HVAC) or machinery to help reduce carbon emissions, which contribute to climate change.
The Enhanced Capital Allowance Scheme allows the costs of capital assets to be written off against a business’s taxable profits. It is effectively a tax relief given through the tax system by reducing the taxable profits of the business.
How can Enhance Capital Allowance save on the cost of Air Conditioning?
The normal rate of enhanced capital allowance for air conditioning and other machinery is 25% a year on the reducing balance basis, which spreads the benefit over a number of years (usually 4 years). However, the really good news is that the Enhanced Capital Allowance scheme now allows businesses to claim 100% first-year capital allowance on their investment in designated energy-saving air conditioning and HVAC in the year in which the expenditure is incurred.
This means that you can write off against profits the entire cost of your air conditioning installation in the year it was purchased. So using the Enhanced Capital Allowance scheme for your air conditioning purchase will give your business a cash flow boost resulting from the reduction of the business’s tax bill of the year in which the investment is made.
Which Air Conditioning Units Qualify for Enhanced Capital Allowances?
The Energy Technology List (ETL) is a register of products that may be eligible for 100% tax relief under the Enhanced Capital Allowance (ECA) scheme for energy saving technologies. The Carbon Trust manages the list and promotes the ECA scheme on behalf of government.
Not all air conditioning and HVAC equipment qualifies Enhanced Capital Allowance, but this is something we can advise on during the quote process. In the meantime, if you would like more information on the equipment that qualifies for Enhanced Captial Allowance, follow this link:
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How to Claim for Enhanced Capital Allowance for your Air Conditioning.
The Inland Revenue administers claims for Enhanced Capital Allowance. They are made in the same way as any other capital allowances on your Corporation Tax Return (or Income Tax Return for individuals and partnerships).
Claiming enhanced capital allowance is fairly straight forward and we can provide guidance on this. In the meantime, The Inland Revenue’s guidance on the ECAscheme can be found at : www.inlandrevenue.gov.uk/capital_allowances/eca-guidance.htm.