Embedded Capital Allowances: The Hidden Tax Relief Many Businesses Miss
What Are Embedded Capital Allowances?
Embedded Capital Allowances (ECAs) are tax reliefs available on fixtures and integral features permanently installed within a commercial property.
Examples of Qualifying Fixtures
- Electrical systems (wiring, lighting, fuse boxes)
- Plumbing and drainage (water pipes, sanitary fittings, grease traps)
- Heating and ventilation (boilers, air conditioning units)
- Security and fire systems (CCTV, emergency lighting, smoke detectors)
- Lifts and escalators
Why Are Embedded Capital Allowances Missed?
1. Lack of Awareness
Business owners and accountants tend to focus on moveable capital expenditures like machinery, furniture, and IT equipment, neglecting hidden fixtures.
2. Poor Record-Keeping & Lack of Cost Breakdown
When buying a commercial property, the total price includes land, buildings, and embedded assets—but these costs are not separated in financial records.
3. Complexity in Identifying Qualifying Assets
Many business owners assume capital allowances only apply to newly purchased items, not realizing that fixtures installed years ago can still be claimed.
Example: How Businesses Miss Out on Tax Relief
Scenario: A Restaurant Owner’s Tax Return
A restaurant owner buys a commercial property for £500,000 and spends £50,000 on new kitchen equipment and furniture. They claim capital allowances on:
- £20,000 – Ovens, refrigerators, fryers
- £10,000 – Tables, chairs, counters
- £5,000 – POS system, CCTV cameras
Total Claimed: £35,000 in capital allowances
However, they miss out on embedded allowances such as:
- £50,000 – Electrical systems
- £20,000 – Plumbing & drainage
- £30,000 – Heating & ventilation
- £10,000 – Toilets & washrooms
Total Missed Claim: £115,000 in additional capital allowances!
How to Ensure You Don't Miss Out
- ✅ Conduct a Capital Allowances Survey to uncover hidden assets.
- ✅ Review Property Transactions and check for Section 198 elections.
- ✅ Consult a Capital Allowances Specialist for maximum tax relief.
