Invest In Solar With Embedded Capital Allowance (ECA)

An embedded capital allowance (ECA) in the UK refers to a type of tax relief that can be claimed on certain capital expenditures related to energy efficient or environmentally beneficial assets that are embedded or integrated into a building or structure.

ECAs allow businesses to deduct a percentage of the qualifying capital expenditure from their taxable profits, thereby reducing their overall tax liability.

The main assets that may qualify for ECAs include:

Energy-saving plant and machinery (e.g. energy-efficient lighting, heating and cooling systems) Water conservation equipment Environmentally beneficial technologies (e.g. solar panels, wind turbines) Low carbon emission cars and electric vehicle charging points.

To claim ECAs, businesses generally need to follow these steps:

Identify qualifying assets – Determine which assets within the building or structure meet the ECA criteria set by the government.

Obtain the necessary certifications – For certain assets, you may need to obtain specific certifications or approvals from authorised bodies, such as the Energy Technology List (ETL)  or Water Technology List (WTL).

Calculate the eligible expenditure – Determine the portion of the capital expenditure that relates specifically to the qualifying ECA assets.

How To Claim the Allowance

When filing your company’s tax return, claim the ECA by deducting the eligible expenditure from your taxable profits. The amount of the allowance will depend on the rate set by the government, which can vary based on the type of asset.

For example, if a company spends £100,000 on installing solar panels that qualifies for ECAs, and the ECA rate is 100%, the company can deduct the full £100,000 from its taxable profits. If the company’s corporation tax rate is 19%, this would result in a tax saving of £19,000 (19% of £100,000).

It is important to note that ECAs are different from other capital allowances, such as the Annual Investment Allowance (AIA) or Writing Down Allowances (WDAs). ECAs are specifically designed to incentivise businesses to invest in energy-efficient and environmentally beneficial technologies.

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