Introduction »

Green winner takes it all

Reducing the carbon footprint is both an immediate and longer term issue affecting personal and business investment. In recent times a range of taxation incentives have been implemented where 100% tax relief is available on certain qualifying plant and machinery purchases classified as energy saving.

In addition further proposals were announced in Budget 2010 to encourage investment in further types of energy saving plant and machinery including zero-carbon vehicles.

It could be argued that the raft of tax incentives on offer is of little use, where finance is not available to fund the purchases. However, interest free loans for energy saving projects may be independently available from the Carbon Trust. In fact in its last reported financial year 2008/09 the Carbon Trust offered over £22 million of these Energy-Efficiency loans to replace old equipment.

How does the Energy-Efficiency loan work?

The interest free loan facility is generally available to small and medium sized businesses (SMEs) where CO2 savings are made from the loan provided expenditure.

The unsecured loans with no arrangement fee range from £3,000 - £100,000 (£500,000 in Northern Ireland). However, the size of the loan and the duration is directly linked to the anticipated CO2 savings which is now set at 2 tonnes of CO2 savings per £1,000 of loan (1.5 tonnes in Northern Ireland).

The maximum loan period is generally set at 4 years, the aim being that loan repayments are offset by energy savings.

Examples of energy saving projects include improved heating, refrigeration, lighting, and insulation processes.

Does my business qualify?

An organisation, for example, a sole trader, partnership, company, club or charity, needs to have been trading for at least 12 months and to generally qualify as an SME. Larger businesses in England, Scotland and Wales may apply in limited circumstances but there is no size restriction in Northern Ireland.

The definition of an SME currently used by the Carbon Trust is:

• an organisation with less than 250 equivalent full time employees and where
• either turnover does not exceed €50m or balance sheet total does not exceed €43m.

The business must not have a substantial holding in a non SME business nor be substantially owned by a non SME. Substantial means 25% or more of the shares or voting power.

As the loans are government funded some business sectors are not eligible due to European Union rules on state aid. Excluded business sectors include certain agricultural, fisheries, horticultural, transport, coal and export-related activities.

However farmers in England can apply for a loan of between £3,000 and £20,000.

The transport exclusion does mean that the loans cannot be used to fund vehicle acquisitions or adaptations. However, new tax relief proposals may at least mean that investments in certain environmentally friendly vehicles will attract 100% tax relief.

For more details about how to apply for an Energy-Efficiency loan and other frequently asked questions see the Carbon Trust website at
www.carbontrust.co.uk/cut-carbon-reduce-costs/products-services/business-loans/pages/loans.aspx

What about capital allowances?

The enhanced capital allowances (ECA) scheme for energy saving equipment is a separate scheme which can allow 100% tax relief on individual pieces of equipment (and cars with emissions not exceeding 110g/km) where that equipment features on specific Energy Technology Lists. For further details see www.eca.gov.uk/etl.

Budget 2010 also announced a proposal to introduce a new 100% first year allowance for capital expenditure on new and unused zero-emission goods vehicles. The measure is due to have effect for a 5 year period commencing April 2010 but legislation for the proposal has not yet been put in place.

For further guidance or information on any of the above matters please do not hesitate to contact us.

Introduction »