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Climate Change Levy

Enhanced Capital Allowance for UK businesses

What your business needs to know ...

To meet requirements of the Kyoto Protocol, the UK Government introduced an energy tax and an energy-efficiency incentives scheme. The goal is to achieve a reduction in total greenhouse gas emissions. The UK figure is some 12.5% reduction in greenhouse gas emissions in the period 1998 - 2012 from a 1990 baseline.

What is the Climate Change Levy?

To discourage energy wastage, the Government introduced the Climate Change Levy (CCL), which is an energy tax that became effective on 1st January 2001. All businesses and public sector organisations in the UK pay the levy via their energy bills.

What is the Enhanced Capital Allowance?

To encourage firms to make energy saving investments, the Government introduced an incentives scheme called the Enhanced Capital Allowance (ECA). Under this scheme, expenditure on technologies and products on the Energy Technology List can qualify for 100% first year tax allowances.

The Energy Technology list of equipment and criteria can be found at: www.eca.gov.uk. The list is dynamic, with new technologies being added as and when they are approved.

What this means

As of 7th August 2001, the Government ratified the ECA scheme, with changes made to the Energy Technology list of qualifying technologies and criteria at each successive budget.

Categories include:

  • Heat Pumps and Refrigeration Equipment
  • Air to Air Energy Recovery
  • Variable Speed Drives

Heat Pumps and Refrigeration Equipment (Packaged Chillers)

Investments in heat pumps and packaged chillers can only qualify for ECAs if the unit or system is named on the Energy Technology List. Eligible products are required to meet performance criteria for both heating and cooling.

Tax Allowances for heat pumps and packaged chillers can include:

  • Full cost of the system.
  • Direct transportation and installation costs including cranage, project management costs, modifications to existing plant and machinery and commissioning.
  • Professional fees but only if they are directly related to the acquisition and installation of assets that are plant or machinery. Fees incurred on such things as feasibility studies or design work are generally too remote from the acquisition and installation to qualify. The eligibility of such costs is a question of fact based on the particular circumstances of the case.
  • Costs of alteration to an existing building arising as a direct result of the installation of the qualifying plant or machinery may be eligible. The heat pump technology listings are currently undergoing some maintenance on the ECA website. All products remain listed on the Energy Technology List during this work though the presentation of the listing will be changing.

Air to Air Energy Recovery

Investments in energy recovery devices can only qualify for ECAs if the unit is named on the Energy Technology List. The standard EN308 is accepted for air to air energy recovery. The qualifying criteria are based on a minimum effectiveness level, and at maximum levels for internal leakage and pressure drop.

Tax allowances for stand-alone air to air energy recovery units can include:

  • Full cost of the equipment.
  • Supply and installation of the heat exchanger.
  • Cost of associated controls, fans and ductwork installed specifically for the purpose of energy recovery.

Variable Speed Drives (Inverters)

Under the scheme, variable speed drives are eligible for a tax allowance for the cost of the component. The DETR have set standard allowances for all manufacturers products across each category. Some condensing units in the Heat Pump category can also be eligible for a listing under the Variable Speed Drives category, but it is not possible to claim for the same unit under both categories. The largest ECA amount available should therefore be the one claimed, which in all cases will be under Heat Pump. Because of this, most systems are now only applied for a listing under the Heat Pump category.

Many products supplied by McVeigh are listed on the ECA website.

Find out how to claim >>