Could Enhanced Capital Allowances help you reduce energy costs?


Rising energy costs continue to provide manufacturing and engineering businesses with a major headache.


Business secretary Vince Cable recently warned that rising domestic energy costs could derail a marked increase in Britain’s manufacturing activity.


With manufacturing output making up half of the country’s exports, but manufacturers facing energy costs as much as 30 per cent above their European rivals, it’s clearly a cause for concern.


However, energy prices are largely out of the control of individual manufacturers, meaning they must focus instead on factors they can control to bring costs down, such as investing in energy saving equipment.


To this end, the government’s Enhanced Capital Allowances (ECA) Scheme exists to enable businesses to write off the capital cost of purchasing new plant and machinery, such as boilers and motors, against their taxable profits.


Businesses can claim a 100 per cent first year capital allowance on investments in certain energy saving equipment against the taxable profits of the period of investment.


So if your business pays corporation or income tax at 23 per cent (due to drop to 21 per cent after March 2014), every £10,000 spent on qualifying equipment would reduce its tax bill in the year of purchase by £2,300.


In contrast, for every £10,000 spent, the generally available capital allowance for spending on plant and machinery would reduce your business’s tax bill in the year of purchase by £414. In other words, an ECA can provide a cashflow boost of £1,886 for every £10,000 it spends in the year of purchase.


The technology that qualifies for the ECA Scheme is listed on the Energy Technology Product List.

This acts as an incentive for businesses replacing plant and machinery to go for the greener option, as opposed to just going for the cheapest option.


As well as contributing to lower energy bills and better cashflow, additional benefits might include a reduction in Climate Change Levy or CRC payment.

Ginni Cooper is head of the manufacturing team at Moore and Smalley. For more information on Enhanced Capital Allowances, please contact Ginni on 01772 821021