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Q: I have been reading about some energy-efficiency technologies qualifying for the ECA scheme, can you please give me more information on how I can claim an ECA for lighting?
A: The Enhanced Capital Allowance (ECA) scheme encourages businesses to invest more freely in energy- saving solutions that help reduce the carbon emissions that contribute to climate change. Certain types of energy-efficient lighting products are eligible for full corporation tax relief for capitalised lighting equipment under the Enhanced Capital Allowance scheme for energy-saving technologies. Tax relief can be claimed on the purchase and installation costs of specific types of LED lighting and lighting controls. The Carbon Trust has been appointed to manage the approved technologies list and promotes the ECA scheme on behalf of the government.
For lighting, the ECA eligibility is dependent upon the system’s performance and how it is configured. In this respect lighting is different to some other energy-saving technologies where specific products are deemed to qualify.
Q: Can you advise me on which LED lighting and lighting controls could benefit from an ECA?
The ECA scheme aims to encourage the purchase of lighting controls that realise energy savings by automatically switching or dimming lighting. Five different categories of lighting control are eligible. These can be either individual or combinations of:
• time controllers
• presence detectors with associated switching controller
• daylight detectors with associated switching and/or dimming controller
• a networked controls system
LED lighting
White light LED luminaire eligibility for ECA is mainly dependant on their efficacy (light output efficiency). The eligibility criterion differs depending on the lighting application:
• Outdoor lighting applications > = 60 lums/W
• General indoor lighting applications > = 60 lums/W
• Accent, display and amenity lighting > = 46 lums/W
Several Philips LED luminaires already exceed the ECA criteria and qualify from the performance perspective. As Philips LED technology rapidly advances, more of the Philips portfolio will meet the criteria
Q: How can my business benefit from an ECA?
A: It can be tempting to opt for the lowest capital cost in terms of initial investment, however, such immediate cost saving can prove to be false economy when considering the whole life cycle maintenance and operating costs. Under the ECA scheme, however, businesses are eligible to claim full corporation tax relief within the first year on their qualifying capital expenditure.
The ECA scheme means that businesses can offset a significant part of the product and installation cost against taxable profits in the year of purchase. This provides a cash flow boost and incentive to invest in energy saving equipment. In addition, from point of installation your business will benefit from reduced carbon emissions, increased efficiency and lower energy bills, as well as a better quality of light when and where it’s needed.
The example below shows the effect on a £10,000 investment in an eligible solution:
Standard Capital Allowance
• Business can write off 10% of the qualifying costs against the taxable profits per year on a reducing balance basis. Relief is spread over several years.
• On £10,000 spent in the year of purchase the effect of the allowances would be to reduce the business’s tax bill by £270.
Enhanced Capital Allowance
• Business can write off 100% of the qualifying costs on eligible plant and machinery against the taxable profits in the first year after the investment is made.
• On £10,000 spent in the year of purchase the effect of the allowances would be to reduce the business’s tax bill by £2,700.
Further information
For further advice on lighting visit www.philips.co.uk or to see your questions answered in Greenbuild magazine, get in touch with Dr Lux by emailing lyoung@hamerville.co.uk.
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