Enhanced Capital Allowance

Enhanced Capital Allowance
Not only can energy efficient lighting solutions from Philips
reduce your carbon emissions and save you money on
running costs, they can also improve your business
cash flow through accelerated tax relief through the
Enhanced Capital Allowance scheme
What is Enhanced Capital Allowance?
The Enhanced Capital Allowance (ECA) scheme encourages businesses to invest more freely in energy saving solutions
that help reduce the carbon emissions that contribute to climate change. Certain types of energy efficient lighting
products are eligible for full corporation tax relief for capitalised lighting equipment under the Enhanced Capital
Allowance scheme for energy saving technologies. Tax relief can be claimed on the purchase and installation costs of
specific types of the LED lighting and lighting controls. The Carbon Trust has been appointed to manage the approved
technologies list and promotes the ECA scheme on behalf of the government.
What types of lighting systems are eligible?
For lighting, the ECA eligibility is dependent upon the system’s performance and how it is configured. In this respect
lighting is different to some other energy saving technologies where specific products are deemed to qualify. This is
detailed in the Energy Technology Criteria Lists on the Carbon Trust website - www.eca.gov.uk/etl
Lighting controls
The ECA scheme aims to encourage the purchase of lighting controls that realise energy savings by automatically
switching or dimming lighting. Various categories of lighting control are eligible; these can be either individual or
combinations of:
• Timer controllers
• Presence detectors with associated switching controller
• Daylight detectors with associated switching and/or dimming controller
• A networked controls system
Philips Lighting can advise on the control systems potential eligibility under the ECA scheme’s criteria.
LED lighting
White light LED luminaire eligibility for ECA is mainly dependant on their efficacy (light output efficiency). The
eligibility criterion differs depending on the lighting application, and amongst the requirements, key examples are as
follows:
• Outdoor lighting applications
> =
65 lums/W
Ra>65
• General indoor lighting applications > =
60 lums/W*
Ra>80
• Accent, display and amenity lighting > =
60 lums/W
Ra>80
This list is not exhaustive and reference to the ECA Criteria list should always be made. Several Philips LED luminaires already exceed
the ECA criteria and qualify from the performance perspective. As Philips LED technology rapidly advances, more of the Philips
portfolio will meet the criteria. Philips Lighting can advise on the solution’s eligibility under the ECA scheme’s criteria.
* (65 without lighting controls)
How can my business benefit?
It can be tempting to opt for the lowest capital cost in terms of initial investment, however, such immediate cost
saving can prove to be false economy when considering the whole life cycle maintenance and operating costs.
Under the ECA scheme, however, businesses are eligible to claim full corporation tax relief within the first year on
their qualifying capital expenditure.
The ECA scheme means that businesses can offset a significant part of the product and installation cost against
taxable profits in the year of purchase. This provides a cash flow boost and incentive to invest in energy saving
equipment. In addition, from point of installation your business will benefit from reduced carbon emissions,
increased efficiency and lower energy bills, as well as a better quality of light when and where it’s needed. This is
maximised by the use of controls.
The example below shows the effect on a £10,000 investment in an eligible solution:
Standard Capital Allowance
Enhanced Capital Allowance
• Business can write off 10% of the qualifying costs
against the taxable profits per year on a reducing
balance basis. Relief is spread over several years.
• Business can write off 100% of qualifying costs on eligible
• On £10,000 spent in the year of purchase
the effect of the allowances would be to reduce
the business’s tax bill by £270.
• On £10,000 spent in year of purchase the effect of allowances
plant & machinery against taxable profits in first year after the
investment is made.
would reduce the business’s tax bill by £2400 (assuming Co.
pays full corporation tax rate).
• Companies within the charge to Corporation tax, a first year
credit * of the eligible expenditure may be claimed (to the extent
this expenditure creates a taxable loss).
* Check HMRC for actual %
Capital Allowance
Capital Allowance
10,000
10,000
£
8000
£
6000
6000
4000
4000
2000
8000
1
2
3
4
5
6
7
8
9
10
2000
1
2
3
Year
Residual value
Capital Allowance
4
5
6
7
8
Year
Residual value
Capital Allowance
9
10
What do I have to do to benefit?
The ECA claim can be made as part of your annual tax return. The expenditure on the provision of plant and
machinery can include not only the actual costs of buying the equipment, but other direct costs such as the
transport of the equipment to site, and some of the direct costs of installation. Clarity on the eligibility of direct
costs is available from HMRC – www.eca.gov.uk/etl. In addition, a useful PDF can be found at www.decc.gov.uk/etl/
resources.htm and select PDF ECA763 Lighting.
How Philips lighting can help?
Where the lighting solution qualifies, Philips will provide confirmation that the product conforms to all the required
standards and criteria, in the form of a data sheet or official letter. This can then be used to support your ECA claim,
although the final award of tax relief will be at the discretion of your local tax office.
Interested in finding out more?
Talk to your Philips sales representative who can advise you on how your organisation can save energy, reduce costs and
enhance business performance through lighting. If you’re not sure who your Philips sales representative is, you can call us
01483 298950 or email us at [email protected] to make an appointment.
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