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Free Cash, Tax Savings & Capital Allowances for SMEs Going Green

‘Free’ £10,000 and extra tax savings for SMEs investing in green technologies

In the current economic climate, a significant external pressure on UK businesses is to reduce their “carbon footprint”. While implementation of new processes and sustainable equipment may be easier for large organisations with bigger budgets, Small and Medium Sized Enterprises (SMEs) may struggle to afford expensive new equipment.

This has been recognised by the Carbon Trust, who in April 2016 launched a new fund awarding grants of up to £10,000 to SMEs that upgrade their existing equipment with new, more sustainable technologies such as LED lighting and energy efficient heating and air conditioning. Not only will the fund award grants, it will also offer free advice and workshops to qualifying SMEs.

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Combining this grant with the government led Enhanced Capital Allowances incentives means SMEs have a great opportunity to save a reasonable sum on their initial outlay for sustainable equipment, as well as potentially saving on future energy bills.

The Carbon Trust’s “Green Business Fund” –

The Carbon Trust launched the “Green Business Fund” in April 2016. The fund holds £7m which it aims to give to between 1000 to 2000 SMEs in a two year window. The fund is marketed as being available on a “first come, first serve basis” which means SMEs interested in the grant should act quickly. As with any grant, there are stringent conditions and a fair amount of paperwork to complete in order to apply.

The first, and perhaps most obvious, condition is whether the business applying for the scheme is actually an SME. Carbon Trust measures the size of the company as defined in the Companies Act 2006, and two of the three conditions below must be met in order to qualify for the scheme –

  • Annual turnover must not exceed £25.9 million
  • The company’s assets on their balance sheet must not exceed £12.9 million
  • The average amount of employees must be no more than 250

Additionally, Carbon Trust stipulates that in order to qualify, a larger enterprise must not have more than 25% ownership of the SME.

Next, SMEs must carry out an “energy survey” which looks to identify current energy usage, opportunities to save energy as well as defining next steps. This can either be done by the company internally or an external specialist can be appointed. Guidance on how to complete an energy survey is available on the Carbon Trust’s website.

Once energy saving opportunities have been identified, the Carbon Trust offers SMEs free “Implementation Advice”. This provides up to 5 days of free bespoke support from a Carbon Trust consultant with the design and specification of the project, as well as procurement of an accredited supplier from the Green Business Directory.

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Together with this supplier, SMEs will finalise the project details, including a comparison of the existing system and the current energy consumption in contrast with the specifications of the new technology and the estimated energy savings once the project has completed. The supplier will also provide a quote for the total cost of the project.

With all the above information compiled, as well as additional information and evidence about the size of the SME, an application can then be made to the Carbon Trust to claim a contribution towards the project from the fund.

The maximum grant available is 30% of the project total (excluding VAT), capped at £10,000.  The contribution is paid within 10 working days of the project invoice and commissioning certificate being sent to Carbon Trust, so long as all the paperwork is in order and meets the requirements. Note that if the contribution is granted, Capital Allowances will not be available on the portion paid for by the fund, in line with the Capital Allowances legislation.

Additional funding for projects is available through Energy Efficiency Financing, a commercial agreement between Carbon Trust and Siemens Financing. This agreement features competitive market rates on leases, loans and hire purchase agreements for the installation of qualifying efficient equipment. The Carbon Trust also offers 0% loans between £3,000 and £400,000 for qualifying businesses on the installation of sustainable equipment. For more on information on financing available through the Carbon Trust, please visit https://www.carbontrust.com/client-services/technology/implementation-and-finance/.

Enhanced Capital Allowances (ECA)

ECA are a Government incentive that has been around since April 2001, to encourage businesses of all sizes to invest in energy efficient plant and machinery. The ECA framework and the ETL, a list of the products qualifying for the relief, are managed by the Carbon Trust on behalf of the Government.

ECA effectively provide an acceleration of the tax relief as they allow the tax deduction of qualifying assets to be claimed 100% in the first year, rather than written down over many years as is the case with other forms of capital allowances. ECA relief is currently capped at £200,000 per annum. Equipment that qualifies for ECA relief includes efficient lighting, heating, air conditioning and ventilation installations as well as water efficient sanitaryware. Details of the products that attract ECA are listed on www.eca.gov.uk.

Lovell Consulting have confirmed with The Carbon Trust that they consider SMEs that benefit from the grant under Green Business Fund can still claim ECA relief on the portion of the project expenditure wholly incurred by the SME business. This is because the Green Business Fund is not led by a Government or public body and so “double claiming” of Government incentives and allowances is avoided. As noted above, the portion of the expenditure paid for by the fund will not be claimable for Capital Allowances purposes.

Palm with a plant growng from pile of coins

Even if the opportunity to claim ECA is missed, the expenditure paid for by the SME could qualify for ‘traditional’ plant and machinery allowances, albeit claimed at a slower rate. Loss making companies can also forgo the losses created by ECA and instead claim a cash rebate of up to 19% of the loss surrendered.

In order to qualify for ECA relief, it is imperative that designs are checked by a Capital Allowances specialist who can confirm whether the system is qualifying or not and can identify the opportunity to change specifications to ensure equipment meets the ECA requirements.

Conclusion

With the Green Business Fund, competitive financing and ECA relief available to SMEs, the opportunity to invest and benefit from green and sustainable technologies has never been better. Not only will the initial outlay be reduced, there will be a chance to reduce taxable profits through Capital Allowances as well as savings on reduced energy bills thanks to your brand new equipment.

It is recommended to use a specialist Capital Allowances firm to ensure equipment meets ECA qualifying requirements and the chance to claim the accelerated relief is not lost. Lovell Consulting purely specialise in Capital Allowances and has provided advice on thousands of construction and refurbishment projects with clients benefiting from the 100% ECA relief incentive.  For more information on the Green Business Fund, please visit https://www.carbontrust.com/client-services/technology/implementation-and-finance/green-business-fund/.

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