ECAs and the Water Technology List
All Horne showers incorporate water (and money) saving features such as timed flow controls and / or integral flow regulators and, as such, now feature on the Water Technology List (WTL) within the category of (water) Efficient Showers. Businesses purchasing products on the WTL will be able to benefit from Enhanced Capital Allowances: 100% first year capital allowances on their expenditure, i.e. capital spending on water efficient plant can be written off against tax, thus improving cash flow and lessening the company's impact on the environment.
Capital allowances allow for the costs of capital assets to be written off against a business's taxable profit at a specified percentage rate. For example, the main rate of capital allowances for plant and machinery is 20% a year on the reducing balance (depreciation) basis. Enhanced Capital Allowances or First Year Allowances (FYA) are specially increased rates of allowances. A greater proportion of the cost of an investment is eligible for tax relief in the same tax period, which means a valuable boost to cash-flow. Water efficient technologies are eligible for 100% tax relief for investment in designated equipment.
The adjacent graph shows how the FYA of the Enhanced Capital Allowance will boost cash-flow in the first year compared with the yearly reducing standard capital allowance.
If a company has taxable profits of £10,000 and invested £3000 on water efficient technologies in the same tax period, then the tax payable will be calculated on the basis of £7,000 profit, which boosts cash flow by £3000 x relevant corporation or income tax rate %.
UK businesses that pay UK corporation tax or income tax can claim ECAs on their spending on designated water-efficient equipment.
Loss-making companies can realise the tax benefit of their investment in WTL qualifying technologies with ECA first-year tax credits by surrendering losses attributable to ECAs in return for a cash payment from the Government.
Local authorities, schools and non-profit organisations are not eligible for tax relief or allowances due to not having taxable profits, but can still benefit from investing in water efficient equipment. By investing in water efficient equipment these organisations can still reduce their waste water, water treatment and heating bills, not to mention contributing to saving the environment.
Products that meet specific water saving criteria are found on the Water Technology List from the Scheme. In the case of efficient showers, water saving features include auto shut-off showers (timed flow controls), low flow shower heads and thermostatically controlled shower sets. Eligible showers must have a flow rate of 8 litres/minute at 5 bar supply pressure such that water usage is minimised during each showering event. Timed flow control showers close off after a set period - less than 2 minutes at 5 bar supply pressure. Water use is reduced during showering and also the chance of showers being left running is minimised.
If you are eligible to make an ECA claim for water efficient equipment you would do so in the same way that you claim other types of first-year allowance - through your income tax self-assessment or your corporation tax self-assessment return. If you need help making your claim for ECAs, you should contact your tax adviser or call the HMRC Self Assessment Helpline on Tel: 0300 200 3310.