Enhanced Capital Allowances

Tax Relief for Businesses Investing in Technologies Benefiting Water Use and Quality

The ECA scheme

• What is the Enhanced Capital Allowance (ECA) scheme designed to do?

• What are ECAs worth to companies?

• Which products and technologies can qualify?

• How to claim?

• How can you find out more about ECAs?

The ECA scheme - aims

• To encourage businesses to invest in more sustainable water technologies

• By providing fiscal incentive to users and

• By providing a marketing tools for manufacturers, thereby encouraging innovation

The ECA Scheme

ECAs provide:

• Fiscal incentives to users designed to encourage companies to choose water efficient and water quality enhancing products and technologies

• Tax relief on qualifying investments within one year, delivering significant cash flow boost and shortening the payback period on investment

The ECA scheme

Products and systems qualifying for an ECA are listed on the Water Technology List and encourage sustainable water use

They deliver significant long-term financial benefits – eg just by being water efficient – over and above the enhanced tax relief

How Much of an Incentive Is It?

• Capital Allowances are a benefit of £7.50 for every £100 spent

• 100% First Year Allowances (or ECAs) are benefit of £30 for every £100 spent

• All allowances due in first year – positively affecting cash flow

• Additional benefits over 10 years

Assuming there are sufficient profits for the Capital Allowances to be written off against and a Corporation Tax rate of 30%:

How the Rates of Relief Compare

Year Expenditure written off against profits

Normal Rate (25%)

SMEs Rate (40% then 25%)

100% ECA

1 2 3 4 5 6 7 8 9 10

25.0 18.8 14.1 10.5 7.9 5.9 4.4 3.3 2.5 1.9

40.0 15.0 11.3 8.4 6.3 4.7 3.6 2.7 2.0 1.5

100 - - - - - - - - -

The Water Technology List

• Water Technology Criteria List– Published in July 2003

– Sets out the technologies and their specific criteria

– Reviewed on an annual basis

• Water Technology Product List– Published Autumn 2003

– Lists all qualifying products on which the tax relief can be claimed

– Updated monthly

Details of qualifying products and technologies can be found on the Water Technology List, which is in two parts:

Specific Qualifying Products and Systems

• Cleaning in place equipment

• Efficient membrane filtration systems

• Efficient showers

• Efficient taps

• Efficient toilets

• Efficient washing machines

• Flow controllers

Specific Qualifying Products and Systems

• 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

How Do Suppliers Get Their Products Listed?

• Full Water Technology Criteria List available on the website

• Online application process

• Send supporting evidence to WTL

• Takes about one month to process an application

• Supplier will be informed if the product meets the criteria

• Successful products will be published on the Water Technology List

How Much Can Businesses Claim?

• The price paid for a new product

• The costs directly associated with the installation of the kit

• For more details see www.eca-water.gov.uk or www.hmrc.gov.uk

Claims can be made only for products appearing on the Water Technology List at the time of investment

ECA Marketing Support

The Government

• Can’t overtly promote any specific products or technologies as qualifying for ECAs

• But can promote the products and technologies on the Water Technology List as meeting the criteria to enable ECA claims

ECA Marketing Support

• The Water Technology List symbol– A new certified symbol for manufacturers to use to show that a

product or technology is included in the Water Technology List

• This will signal:– Approved sustainable water use performance/product

differentiation

– Water efficient performance/reduced water costs

– Opportunity for end users to claim the tax benefits

ECA Marketing Support

• Marketing tools programme to manufacturers– To encourage you to use the WTL symbol to support sales

development activities eg on literature, tenders, invoices

• Marketing programme to Trade Associations– To encourage members to apply for/use the WTL symbol

through product applications

• Marketing programme for business advisors– To encourage end users to look for the WTL symbol when

making procurement decisions

ECA Marketing Support

• Events– Designed to raise awareness of ECAs and the WTL symbol

– Through trade associations and other stakeholder groups

– Envirowise event programmes targeting• SMEs

• Finance

• Procurement

• Boardroom

The Future

• Scope is being continually expanded – details of new products and technologies will be featured on the ECA website

• Development of water quality enhancing technologies

• Information online on how to make Defra aware of technologies which could be considered for addition to the Water Technology Criteria Lists in the future

Other Sources of Useful Information

www.defra.gov.uk

www.hmrc.gov.uk

www.envirowise.gov.uk

Envirowise Advice Line

0800 585794