Energy Efficient Finance & Enhanced Capital Allowance
UK businesses can become greener without having to pay a penny, with an incredible offer at Blazes Renewables. Not only are there no up-front payments for low carbon and renewable technology installations, but in addition, all repayments are covered by the new ‘Energy Efficiency Finance scheme’.
Understanding HMRC Enhanced Capital Allowance Scheme (ECA)
The UK Government has some long-standing commitments to reduce the nation’s carbon output and reduce waste in energy use and part of its armoury here comes in the form of tax relief.
One of the most attractive is the Enhanced Capital Allowance (ECA) legislation that was introduced back in 2001 by then Chancellor, Gordon Brown. The scheme allows businesses to write off the entire cost of any product included on the Energy Technology List (ETL) against taxable profits.
In particular businesses should be looking at converting existing lighting to LED where savings are typically over 60%, and installing Solar Photovoltaic systems to generate free electricity. Ordinarily, tax savings by write-down relief ranges from a meagre 8% up to a maximum of 18% and this reduces over time as the asset depreciates. By investing in technology included on the ETL, businesses can actually make the more expensive equipment more cost effective.
For example, if a business spends £10,000 on assets qualifying for ECAs, they would be able to secure tax relief of £1,900 in year one (where corporation tax is 19%). But spending slightly less (£9,000) on non-qualifying assets would deliver tax relief of only £340 in year one. The benefits are clear. In fact, it’s pretty much a no brainer.
But the returns on qualifying equipment don’t stop there – installation of the right equipment such as LED and Solar PV will lower a business’ overheads and reduce energy bills over the long term.
The ECA Scheme is due to come to an end on April 1st 2020 – now is the time to take action.
The cost of converting an office block lighting to LED was £32,922.00. The entire amount was provided by one of our Finance Providers and the client repaid this amount by making 36 monthly payments of £1,047.58. The monthly savings made by converting to LED was £1,879.92 meaning that the client benefited from a positive monthly cash flow of £832.34. The payback period on this investment was just 18 months and once this point was reached the client went on to benefit by £1,879.92 each month for a further 15 years, the lifetime of the LED products in this application. The total amount of positive cash flow resulting from this investment was over £300,000.
In addition, at the Client’s year end their Accountants were able to take advantage of the HMRC Enhanced Capital Allowance Scheme reducing their tax bill by £6,255