The UK has committed to reducing carbon emissions by at least 60% by 2050. To achieve this, businesses are encouraged to opt for energy saving projects. Whilst the financial benefits of such projects are clear, the initial capital expenditure can be inhibitive. Grant funding and tax relief schemes are assisting to help overcome this financial barrier.
Ian Meaburn, Director at Myers Clark, caught up with Rowan Wallis, Project Officer for Low Carbon Workspaces to discuss potential projects and energy-saving opportunities.
IM: So, Rowan, could you explain what Low Carbon Workspaces is?
RW: Low Carbon Workspaces is an EU funded programme that offers grants of between £1,000 and £5,000 to EU-defined small to medium sized businesses; those with less than 250 staff and a turnover of less than €50 million. The grants can cover a third of the cost of installing energy saving measures, for example, LED lighting, insulation or heating and cooling controls.
IM: What are some of your most recent projects?
RW: LED lighting is proving particularly popular, due to the attractive return on investment it typically offers, as well as aesthetic improvements and a reduction in maintenance requirements. The cost of replacing fluorescent tubes in an office with LED panels will usually be repaid in energy cost savings in around four years, or two and a half years with the grant funding. Other recently funded projects include wireless heating controls, a new boiler and double-glazing. Some businesses have combined a number of projects for a full energy efficiency retrofit.
IM: How would a business apply for this funding and how long would the process take?
RW: I suggest the first thing a business does is give Low Carbon Workspaces team a call. If they have a project in mind we can check it meets the scheme criteria. Alternatively, if they would like help with identifying energy saving opportunities, we can discuss potential projects. Your clients will be pleased to know our service is impartial and free, because the funding is provided via the EU programme.
Once the business has decided on the project, it will need to obtain quotations from contractors for their project and submit these with a completed application form. Following approval, they install their project and provide evidence that they have paid the contractor. The grant payment will be received within 14 days.
RW: How does this work with claiming Enhanced Capital Allowances?
IM: Some of these projects will also qualify for 100% tax relief on the cost in the year of purchase through businesses capital allowance claim. A number, although not all, will qualify for the normal Annual Investment Allowances (AIA) which allows the first £200,000 invest in plant and machinery or integral features to be 100% allowable in the year of purchase. Integral features would include things like heating systems, air conditioning and air cooling systems, hot and cold water systems and electrical systems including lighting.
Where a business has capital expenditure in excess of the AIA amount, normally plant and machinery allowances are available at 18% and Integral features at 8%. The same rate is applied to the remaining balance in subsequent years, meaning the full tax relief is very slow to be realised.
However if you purchase an item which is included on the Energy Technology List (ETL) or meet the criteria included within the list, which is managed by the Carbon Trust on behalf of the government, the business would be able to claim 100% First Year allowances. Increasing the total expenditure on which the company can receive full tax relief on in the year beyond £200,000.
Enhanced Capital Allowances (ECAs) are also available on low CO2 emission cars, natural gas and hydrogen refuelling infrastructure, although the grant would not cover these kinds of projects.
It is also possible for a loss-making companies to surrender their losses attributable to ECAs in return for cash payment from the government. The amount payable to any company claiming payable Enhanced Capital Allowances will be expressed as 19% of the loss surrendered, although it is restricted by the greater of £250,000 or the total PAYE and National Insurance contributions paid by the business during the same accounting period.
RW: For a company looking to install new energy-saving lighting, how much could they expect to save?
IM: By way of example, a company, which has already used up their AIA’s for the accounting period, is considering replacing fluorescent lighting with LED panels.
There is a wide range of LED products available, varying in price and quality. Amongst other criteria, to be eligible for Enhanced Capital Allowances, luminaires must produce a minimum light output for the power consumed; 82 lumens per circuit Watt in the case of LED panels.
One option is to spend £15,000 on qualifying LED panels. They business could receive the maximum grant of £5,000 and 100% Enhanced Capital Allowance in the year on the balancing £10,000, reducing their tax bill by £1,900 (£10,000 x 19%). The overall cost would therefore be £8,100 (£15,000 less the £5,000 grant and £1,900 tax saving).
The alternative is to buy less efficient, non-eligible cheaper panels at £13,500. While a £4,500 grant would still be available as the LEDs provide an energy saving against the existing fluorescent lighting, the capital allowance would only be 8% giving a tax saving for the year of £137 (£9,000 x 8% x 19%). The overall cost would therefore be £8,863.
So although the more efficient panels initially appear to be £1,500 more expensive, they actually work out £763 cheaper in the first year; and this is before the ongoing energy cost savings the business will enjoy. Together, the grant and tax relief are enabling businesses to install best practice solutions.
Contact Us
For further information about Low Carbon Workspaces, or if you have a particular project in mind, please visit www.lowcarbonworkspaces.co.uk. You can also contact Rowan Wallis on 01494 927163 or email him at rowan.wallis@ngagesolutions.co.uk. The service is impartial and free of charge.
For information about Enhanced Capital Allowances and qualifying tax reliefs, please contact Ian Meaburn who will be able to discuss your business’ eligibility. Ian can be contacted at ian.meaburn@myersclark.co.uk or on 01923 224411.