Previously I pointed out the potential savings that can be made and the finance available from The Carbon Trust for replacing current lighting, heating, cooling equipment etc with an energy efficient equivalent. In that article I mentioned that the cash flow savings delivered through reduced payments to your utility supplier can finance the loan repayments. This is not the whole picture. There is still a little more meat to add to the bones on this topic.
HRMC have in recent years attempted to encourage business to invest in green technology/ equipment. This has primarily been delivered through the Capital Allowance scheme.
The ‘incentive’ as provided by HMRC is the availability of Enhanced Capital Allowances to achieve tax relief on the acquisition and installation of certain certified energy saving equipment.
Check the following link to confirm that any potential equipment acquisition qualifies for Enhanced Capital Allowances before you buy http://etl.decc.gov.uk/etl/find/
The application of these Enhanced Capital Allowances effectively allow the business to claim tax relief on the full cost of acquisition and installation of this equipment in year one.
Example – assume the business spends £10,000 on energy efficient equipment and its subsequent installation. The business can then claim a reduction in its taxable profits to the extent of £10,000. This is applicable to either limited company, sole trader, or partnership businesses.
There is a further aspect to the Enhanced Capital Allowances for limited companies that we will look at next time.
Fossil fuels, energy efficient equipment and The Carbon Trust
Having recently been involved in a review of utility expenses with some of our SME clients I came to challenge the notion that “you can’t get something for nothing in this life”. Well, on the basis of some number crunching, a lot of meetings and discussions and the like with various others, it would appear that it is in fact possible to get something for nothing.
The technology upon which energy efficient lighting, heating, cooling etc. is based has developed so rapidly over the last, say 10 years that if your equipment was installed around that time, or before, then it just might be the case that you could change your lighting, heating/ cooling equipment “for nothing”.
In one of the cases that we have been looking into, as I referenced above, we have moved beyond the paper review of the costings, and are now looking at the physical equipment that is being proposed.
In that case the lights are ‘burning’ for approximately 50 hours per week. It would appear that new energy efficient LED based lighting can be introduced to provide a ‘similar level of lighting’ but delivering between 65% – 70% efficiency gain on the current lighting.
The Carbon Trust currently provide interest free loans to SME’s based in Northern Ireland and Wales. These loans are typically repaid over the first 3 – 4 years after installation.
The projected cashflow savings (through reduced payments to the electricity supplier) being delivered through the installation of these LED lights, in the case we have looked at, is greater than the monthly repayment of the Carbon Trust loan – albeit only by a small margin during the loan repayment period. However, once the loan is repaid in full the savings all yours!
For more information on Carbon Trust and their interest free loan see their website: http://www.carbontrust.com/client-services/northern-ireland
Our next article will look at the Enhanced Capital Allowances position and their impact on the acquisition of energy efficient equipment.