Viewpoint: The importance of energy efficiency

Apr 23 2008 by Neil Sturmey, managing partner at accountants Grant Thornton in Liverpool

ENERGY efficiency has never been more of an issue for the property industry.

The phased introduction of Energy Performance Certificates for commercial buildings starts this month, and has thrown up a pertinent question for owners of commercial property. How do you make your existing buildings more energy- efficient and what will the cost be?

While most property people are familiar with the Government’s penchant for using the tax system to force us all into greener practices, not everyone is on the ball in terms of exploiting the incentives that are in place.

Capital allowances for plant and machinery is one particular area of tax relief that is often overlooked, but with EPCs now on the radar, it is an increasingly important way of cutting costs.

Items that qualify as plant and machinery within a building have traditionally attracted a high level of tax relief. In tax terms, plant refers to items that have an active function in the business, and in general these items have qualified for a 25% per annum writing down tax allowance.

That means, at worst, more than 75% of the cost of the plant will have been relieved against taxable profits after five years.

However, in the 2007 Budget, these allowances became a casualty of Gordon’s Brown’s corporation tax cuts.

The changes, which come into force this month, have seen the rate of allowance reduced to 10%.

The good news is this rate has not been reduced for energy saving plant and includes the Enhanced Capital Allowances scheme (ECA). The ECA allows the full cost of an investment in energy- saving plant, such as some lighting, boiler equipment and heat pumps, to be fully written off against the taxable profits of the period in which the investment is made.

The introduction of EPCs means potential buyers, tenants and investors have been presented with a new criteria on which to judge properties.