Interest-free loans for energy efficient equipment
By Peter Reynolds
On 29 June 2009, changes were made to the size of the loan and size of business supported by the Carbon Trust loan scheme. Small or medium-sized businesses (SMBs) in England, Scotland, Wales and Northern Ireland can borrow from as little as £3,000 up to £400,000 (previously the loans were set at £5,000 to £200,000).
The size of the loan and its repayment period will be based on projected CO2 savings which are assessed by the Carbon Trust. The loans are unsecured, interest free and are available for a vast array of equipment and projects including, but not limited to, efficient boilers, lighting, refrigeration and air conditioning. In practice, this means that a qualifying company can receive a loan to buy the equipment and may also be able to claim enhanced capital allowances on that expenditure. The enhanced capital allowance comes in the form of 100% first year allowance, or a payable tax credit if loss making, for expenditure on qualifying energy saving technologies.
In order to qualify for the interest free loan, the investment must save at least 1.5 tonnes/CO2 per £1,000 - so a minimum loan will save 4.5 tonnes of CO2. Last year, the Carbon Trust loaned over £20m to over 700 enterprises, but the Carbon Trust wants to improve on this and is offering more than £100m in interest-free, unsecured loans at a time when bank funding is more difficult to arrange. Hugh Jones, Director of Solutions at the Carbon Trust said, "There's always been financial benefit from carbon saving but we are bringing it closer to home by offering the money interest free. Come and get it."
The Carbon Trust is an independent company set up by the Government in response to the threat of climate change. Their stated mission is to accelerate the move to a low carbon economy by developing commercial low carbon technologies and working with business and the public sector to reduce carbon emissions.
For the purpose of applying for a loan, an SMB is defined as a business that has been trading for at least 12 months and that:
• employs fewer than 250 full-time equivalent employees; and
• has an annual turnover not exceeding £43m; and/or
• has an annual balance sheet total not exceeding £37m; or
• is an enterprise (including all other enterprises in the group) that consumes less than £500,000 in electricity per year.
In Northern Ireland and Wales, the loans are available to all enterprises, including larger companies. However, due to EU rules on state aid, enterprises involved in the following sectors are excluded:
With the change in the qualifying criteria, it will be worth considering whether your business or client will be eligible for the interest free loans. At the same time, the accelerated tax reliefs or even payable tax credit could provide further benefits.
Peter is a senior manager at Bourne Business Consulting LLP, specialising in tax depreciation, with a background in construction. By combining his tax and construction experience of over 20 years, he is able to offer added quality of advice to clients in the property, construction and real estate industries.