UK tax incentives continue to fund energy saving installations
With energy prices again starting to rise, now is a good opportunity to review some of the financial incentives from the UK Government for installing energy saving equipment. For example, it is not only the ECA scheme that makes installing energy saving as variable speed drives sound investment.
In addition to lower running costs, VSDs frequently improve productivity, and reduce waste and downtime. Add to these the Government funded Enhanced Capital Allowance (ECA), it is almost unthinkable that manufacturers would not install them. If your company is not convinced, UK Automation Trade Association GAMBICA put together an attractive example.
In January 2016, the Government permanently increased the Annual Investment Allowance (AIA) for industry to £200k a year. In effect, the business would not pay tax on this amount, so at a corporation tax rate of 19% this is worth an additional £38k on the bottom line.
Tax incentives on energy saving
In addition to the increased AIA, for products like 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 also 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.
The table below shows an example for a new HVAC system. Total investment is £300k, and £100k of this qualifies for ECA and the remainder for capital allowances. In addition to the energy saving and improved system operation, the on-going financial payback is something that wouldn’t necessarily be provided by other forms of investments.
Example of savings available from an energy saving
| Type | Value |
| Enhanced Capital Allowance ECA | – Qualifying products: 10 x 90kW VSDs |
| – Claim value: £100k | |
| – Corporation tax rate: 19% | |
| – ECA saving: £19k | |
| Standard Capital Allowance AIA | – Claim value: £200k |
| – Corporation tax rate: 19% | |
| – Capital Allowance tax saving: £36k | |
| Energy Savings | – 10 X 90 kW drives running 4000 hrs pa and reducing energy by 33% |
| – Energy saving per year £120k | |
| Total Saving | – Year one: £175k |
| – Following years: £120k (energy saving) | |
| – Payback period less than 2 years |
The Enhanced Capital Allowance scheme guide from Gov.uk
Energy saving VSDs at discounted prices from 999 Inverters
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