Who should I contact with any queries?
Are there any other schemes for First-Year capital Allowances (FYA)?
There are several other schemes for first year allowances, for example, there is a scheme for energy efficient equipment. You'll find information for these schemes on the GOV.UK website at: www.gov.uk/capital-allowances/first-year-allowances
The water efficient product my business had bought is not on the Water Technology List, can my business claim an ECA?
ECAs can only be claimed on equipment that is included on the Water Technology List (WTL) at the time when the purchase is made. If the product you buy meets the current eligibility criteria but is not included on the list when you buy it, it does not qualify for an ECA even if it is added to the WTL at a later date.
Are there any exceptions to qualifying expenditure?
Plant and machinery with an expected useful economic life of 25 years or more when new, and expenditure incurred on used or second hand plant and machinery does not qualify.
How much can my business claim?
Qualifying expenditure is that which is incurred on the provision of new water-efficient equipment for business purposes. The qualifying technologies and products are published in the Water Technology List. Expenditure on the provision of plant and machinery can include the cost of buying the equipment, and other direct costs for large items, such as the transport of the equipment to the site and the direct costs of installation.
How does my business claim the ECA?An ECA must be claimed in the business's income or corporation tax return of the period during which the purchase is made (the same tax year).ECAs can only be claimed on the purchase of technologies that are listed on the Water Technology List at the time they are bought.All businesses have an obligation to keep records relating to the purchase of the equipment. HM Revenue and Customs has the power to enquire into any aspect of a tax return. If errors are identified, any tax underpaid may be recovered with interest. In the cases of negligent or fraudulent conduct penalties may be imposed.
Who can claim ECAs?
All businesses that pay UK corporation or income tax can claim ECAs on their spending on designated water-efficient equipment.
Organisations that do not pay tax, for example local authorities, schools and non-profit organisations, do not have taxable profits and do not claim tax relief, therefore they cannot claim capital allowances. However, these organisations can still use the Water Technology List as a source of information for water efficient equipment that may save them water and thereby reduce their water bills.
How much is the ECA worth to my business?
The benefit of ECAs is dependent on your business having sufficient profits for the allowance to be written-off against and the rate at which your business pays tax.
Assuming that a business pays tax at 20% corporation tax rate in the year of the investment:
- Capital allowances at the generally available rate can reduce a tax bill by £3.60 for every £100 spent (with further relief on the unrelieved spending in later years)
- Enhanced capital allowances can reduce a tax bill by £20 for every £100 spent (as all the relief is given up-front, there is no unrelieved expenditure for relief in later years).
What is an enhanced capital allowance (ECA)?An enhanced capital allowance is a type of first year allowance. It allows a greater proportion of the cost of an investment to qualify for tax relief and provides a helpful cash-flow boost. The ECA claim must be made against a business's taxable profits in the tax year when the investment is made.If you’re a business that pays income or corporation tax, you’ll be able to claim 100% of the cost of an asset if it’s on the WTL at the time of purchase – that means you can deduct its full cost from your profits before tax.First year allowances can be claimed in addition to your annual investment allowance (AIA) - they don’t count towards your AIA limit.The example provided below uses equipment costing £1,000 and assumes the business pays corporation tax at 20% and the main rate for writing down expenditure on plant and machinery at 18%.
Remaining expenditure not previously written-off against profits
Capital allowances available
Effect of tax relief
18% of £1,000 = £180
20% of £180 = £36.00
£1,000 - £180 = £820
18% of £820 = £148
20% of £148 = £29.52
£820 - £148 = £672
18% of £672 = £121
20% of £121 = £24.21
£672 - £121 = £551
18% of £551 = £99
20% of £99 = £19.85
£511 - £99 = £452
18% of £452 = £81
20% of £81 = £16.28
£452 - £81 = £371
18% of £371 = £67
20% of £67 = £13.35
£371 - £67 = £304
18% of £304 = £55
20% of £55 = £10.94
£304 - £55 = £249
18% of £249 = £45
20% of £45 = £8.97
£249 - £45 = £204
18% of £204 = £37
20% of £37 = £7.36
£204 - £37 = £168
18% of £168 = £30
20% of £30 = £6.03
£168 - £30 = £137
18% of £137 = £25
20% of £25 = £4.95
£137 - £25 = £113
18% of £113 = £20
20% of £20 = £4.06Notes:Corporation tax set at 20%. www.gov.uk/corporation-tax-rates/ratesCapital allowances are rounded in the taxpayer’s favour.For more information on capital allowance claims and rates visit:www.gov.uk/government/publications/capital-allowances-and-balancing-charges-hs252-self-assessment-helpsheet/hs252-capital-allowances-and-balancing-charges-2015#claiming-capital-allowancesYour business may pay tax at a different rate to the example given above – to understand how ECAs can benefit your business you may wish to contact your business's tax advisor.For guidance on ECAs for water-efficient plant and machinery visit the GOV.UK website at: www.gov.uk/capital-allowances/first-year-allowances
Why was the Water Technology List (WTL) set-up?
The WTL was set up to incentivise UK organisations to invest in water efficient products and systems by offering a tax benefit through the Enhanced Capital Allowance (ECA) water scheme. The ECA allows an organisation to offset the cost of purchasing eligible plant and machinery against its taxable profits.
The ECA water scheme covers a variety of technologies including:
- Cleaning in place equipment;
- Efficient showers;
- Efficient taps;
- Efficient toilets;
- Efficient washing machines;
- Flow controllers;
- Greywater recovery and reuse equipment;
- Leakage detection equipment;
- Meters and monitoring equipment;
- Rainwater harvesting equipment;
- Small scale slurry and sludge dewatering equipment;
- Vehicle wash water reclaim units;
- Water efficient industrial cleaning equipment;
- Water management equipment for mechanical seals; and
- Wastewater recovery and reuse systems.
What is the enhanced capital allowance (ECA) scheme?The Enhanced Capital Allowance (ECA) scheme for water allows businesses to invest in water-efficient plant and machinery and write the cost off against tax. This can bring significant financial savings and reduce an organisation’s impact on the environment.The ECA water scheme covers a variety of technologies. These include water-efficient taps, toilets, industrial cleaning equipment and more. For information on all the eligible technologies, see the Water Technology List.The ECA water scheme is managed by the Department for Environment, Food and Rural Affairs (Defra) and HM Revenue & Customs (HMRC). Ricardo Energy & Environment manages the WTL on behalf of Defra.ECAs can also be claimed on a range of other assets including energy efficient equipment, see the GOV.UK website for more information: www.gov.uk/capital-allowances/first-year-allowances