24 Jul 2024


There’s never been a better time to invest in energy saving

The Government has announced a ten-fold increase in the tax-free allowance for energy efficiency investments. Gambica’s deputy director, Steve Brambley, explains how this could give you savings worth hundreds of thousands of pounds.

Due to ever-increasing energy demands and prices, any technology that increases efficiency is usually a sound investment. Whether it is using variable speed drives or a fixed-speed controls, reducing the energy consumption in motors usually gives a quick payback and on-going savings that more than justify any initial outlay.

However, economic uncertainty and corporate austerity measures often present a barrier to any investment, no matter how appealing. The government has recognised this and has introduced a ten-fold increase in the capital allowance tax relief for the next two years, to try to stimulate the necessary investment for growth and competitiveness.

Under the previous tax rules, businesses could claim certain investments up to a value of £25,000 per year as an annual investment allowance. This has now been raised to £250,000. In effect, the business would not pay tax on this amount, so at a corporation tax rate of 24% this is worth an additional £60,000 on the bottom linen – a significant reduction off the initial investment cost. This is a very welcome change and will hopefully persuade many businesses to invest in equipment that will make them more effective.

Businesses can claim 100% of the allowance in the first year, which offers a large cash flow advantage over standard allowances. However, like all good things, there are limits. The scheme will only run for two years from January 1, 2013, so the investment needs to be made sooner rather than later if it is to qualify.

In addition to the raised ceiling for standard capital allowances, for products such as variable speed drives that are on the Energy Technology List, there is also the Enhanced Capital Allowance (ECA) which means that 100% of the value of the qualifying product can be offset in the first year. If this forms part of an investment in a machine, then the ECA can be claimed on the qualifying product and the balance claimed against capital allowances.


And let’s not forget that there’s the inherent energy saving from the improved system efficiency by controlling the motor. This on-going financial payback is something that wouldn’t necessarily be provided by other investments.

If we put on an accountant’s hat for a moment, we can see how the sums add up. The table below shows an example for a new cooling and ventilation installation. The total investment is £300,000, of which £100,000 qualifies for ECA and the remainder for capital allowances

So there really has never been a better time to invest in energy saving. With tax relief available on capital allowances and enhanced capital allowances, and an on-going payback from energy efficiency, the return on the investment is very attractive to even the most austere of finance directors.

The new government tax rules should be something that all stakeholders should be informing their customers about, whether they are an automation vendor, a machine builder, a systems integrator, a consultant or an energy manager. You can take your accountant’s hat off now, by the way.