What Businesses Need to Know About Energy Efficiency Grants

Energy efficiency should be more important to your business now than it ever has been before. Not only can you make substantial cost savings and do your company substantial reputational good, but it has become increasingly evident in recent years that the only way that we will be able to maintain growth in the future is if we do carry out our business sustainably.

Understanding Energy Efficiency Grants

Making these changes costs money, and sometimes it can be expensive, and this is where energy grants come in. So important is sustainability considered nowadays that you can now receive support to help transform your business into a more energy-efficient one in a variety of different ways.

Whether we’re talking about energy efficiency measures–such as revising production processes, the upfront costs of investing in energy-efficient equipment, waste management and reduction initiatives or sustainable development initiatives–many business owners seem unaware of where these grants can be found.

The very act of carrying out business has an environmental cost, whether it’s through electricity or gas use, the waste produced, or the materials required for manufacture. As one of the top ten biggest economies in the world, the UK has a responsibility to lead the way in moving towards a future which minimises that cost as far as possible.

Benefits of Energy Efficiency Grants

The benefits of energy efficiency grants are numerous. There can be substantial financial benefits in the reduced energy costs that come with moving to more energy-efficient practices, increasing your competitiveness, which in turn will drive business growth while reducing your carbon footprint. Grants can help with the costs of making these changes.

Eligibility for Grants

Grants and other schemes to offer assistance come from a variety of different originators, from the government to local councils and even energy companies themselves. Different schemes will be available depending on whether you’re in England, Scotland, Wales or Northern Ireland, and they will have different eligibility criteria based on your exact location, your business sector, and the size of your business.

Energy Efficiency Grants Available to UK Businesses

UK Government

There’s almost £5 billion of funding available to help UK businesses as part of the government’s commitment to reach net zero emissions by 2050. The funding will be awarded to businesses investing in green technologies to increase energy efficiency or reduce carbon emissions. Updates on what is available to your business are available on the government’s guidance page, so make sure that you check back regularly to ensure that you’re up to date with what’s available.

Scottish Government

The Scottish government has set itself the target of reaching net zero by 2045 rather than 2050, and in order to assist with doing so they have launched a number of support options for businesses, including:

Low Carbon Manufacturing Challenge Fund

Suitable for any company with a manufacturing base in Scotland that wishes to grow its business by developing low-carbon products, processes or services through pure research and development (R&D), capital investment or environmental aid support.

Funding Support for Clean Energy Transition

Funding to help companies speed up Scotland's transition to using clean energy, ensuring that as many Scottish companies as possible are involved in developing new clean energy solutions, which will help Scotland to achieve net zero carbon emissions.

Facilities Access Fund

This service helps businesses based in Scotland to develop work that will help increase the growth of the circular economy. Businesses from all sectors are eligible. The service is administered by Zero Waste Scotland.

Welsh Government

The ‘Net Zero Industry Wales’ project has been established to decarbonise Welsh industry and create jobs in the green industries of the future. It’s not yet clear whether small businesses will be able to apply for direct funding through this initiative, but it’s worthwhile keeping an eye on the Net Zero Industry Wales website for further updates and on the news for further announcements from the government itself or the agencies working on their behalf.

Northern Irish Government

In Northern Ireland, such matters are dealt with by the Department of Agriculture, Environment and Rural Affairs (DAERA), and their website has details of the grants and funding that they currently have available.

Local Councils

There are also numerous other energy efficiency grants which may be offered by local councils. Of course, what is on offer will be determined by who your local council is, and if you don’t know it you can find that out through the government’s handy postcode checker. In Scotland, local schemes are also listed on the main support page; for example, Dumfries & Galloway Council offer free expert advice for SMEs in their area on climate resilience, among many other subjects.

Other Sources of Finance for Businesses

Of course, financing changes that will benefit your business in the way that energy efficiency does could be valuable even if there are no grants currently available to match your needs. Funding can be available from elsewhere including banks and some Non-Governmental Organisations (NGOs).

Green Bank Loans for Businesses

Some major UK banks offer loans at competitive rates for sustainable projects or activities. Businesses can access discounted lending through the Clean Growth Financing Initiative through Lloyds, Barclays offer green trade loans for regular or one-off purchases of goods and raw materials to support a variety of purposes, HSBC launched a £500m Green Fund for SMEs in 2021, and Natwest has Green Loans for eligible activities and purchases.

Other Funding Sources for Businesses and Green Projects

High street banks aren’t the only places that can help you with moving your business towards being more sustainable. Services through charities, NGOs and other such organisations tend to be more localised in their approaches, so it will pay to have your ear to the ground locally when it comes to what may be available. Joining your local chamber of commerce is an excellent place to start. This is a small selection of the other grants and funding sources available at the moment

WRAP

WRAP is a UK-based NGO whose mission is to tackle the causes of the global climate crisis and give the planet a sustainable future. Their grants, loans and investments have an emphasis on recycling and reducing waste so would be good for organisations who want to increase their capacity for recycling and use more recycled materials.

The Low Carbon Innovation Fund

The Low Carbon Innovation Fund is investing over £100 million for SMEs in the East of England who are developing or introducing environmentally beneficial technologies. And while they only invest in companies that are expected to make a measurable contribution to greenhouse gas reduction, they invest in companies both in the early and late stages of their ventures.

Low Carbon Across the South and East (LoCASE)

The Low Carbon Across the South and East (LoCASE) programme aims to help businesses become more competitive and profitable while protecting the environment and encouraging low-carbon solutions. LoCASE provides grants of up to £10,000 as well as training workshops and fully funded events.

Circular Economy Investment Fund

Administered by Zero Waste Scotland, the Circular Economy Investment Fund is an £18m funding opportunity for small and medium-sized businesses and organisations in Scotland. They want to fund innovative projects that can deliver carbon savings, leverage investment and create jobs.

The Sustainable Business Partnership

The Sustainable Business Partnership offers grants of between £1,000 and £5,000 to cover up to one-third of the cost of energy efficiency projects. Eligibility criteria apply and the partnership itself says “We are now in our last funding round. We only have very limited funds”, but the fund remains open at the time of writing.

Maximising Grant Benefits

Applying for such grants can take a little effort, so it’s important that you fully understand the conditions of one being made to your company and that you maximise its usefulness. It is recommended that you carry out an energy audit, in which you detail your energy use and inspect your company premises to see what can be changed. Creating an action plan and making sure that your new efficiencies are effectively communicated to the public, your suppliers and your staff will help you get the most from your grant.

Are There Reporting Requirements for Businesses That Receive Grants?

Reporting requirements will vary depending on the type of grant you've received, but in general, you'll need to provide periodic reports on how you're using the funding and what progress you've made. This is important for both the granting organisation and for taxpayers, who want to ensure that their money is being used effectively.

The specifics of the reports required will also vary depending on the organisation, but they typically include financial information, such as income and expenses, as well as narrative updates on your activities. Some grants may also require more detailed reports, such as progress reports on specific milestones. Make sure that you know what your obligations are at the point that you apply in the first place.

Are There Any Tax Implications for Businesses Receiving Energy Efficiency Grants?

Grant income can take many forms including private and government grants. The most important point to consider in regard to grant income is whether the income really is a grant.  The labelling of a payment to you as a grant does not make the income necessarily a grant, even income from a government department.

If the grant is for expenditures that you would normally record in the profit and loss account, the grant income is reflected as income in your profit and loss account.  Such a grant may be deferred if it relates to a specific expenditure which has not yet been incurred.  Deferred means recorded on the balance sheet and released to the profit and loss account when the expenditure is actually spent.

If the grant relates to equipment or other fixed assets then the grant income is deferred and released to the profit and loss account to match the depreciation of the grant purchased asset.

Grants are generally taxable income, the same as any other income arising in your trade.  If the grant is for expenditure that appears in your profit and loss account and you can defer the grant income (as above) then you may not have a tax liability on the income as it will be matched with its intended expenditure.  Thus the income and expenditure will cancel each other in your accounts, not affecting your profit or tax figures.

If the grant income is spent on equipment then the grant is not taxable but there is no capital allowance available for the equipment expenditure. Grant income is outside the scope of VAT, therefore no VAT is payable when you receive a grant.  Care is needed as HMRC is particularly keen to ensure that income is not excluded from VAT merely on the basis of a label being applied to the income.

Assuming the grant is outside of the scope of VAT it is usually still possible to reclaim the VAT on the expenditure paid for from the grant.  This VAT can be reclaimed (subject to being VAT registered and normal reclaim rules) if the expenditure relates to a VAT trade. If your activities are entirely grant (or donation) funded, or the activities in question are separate from your trade, then the VAT on your costs cannot be reclaimed.

It’s tempting to look at the current condition of business grants for energy efficiency and think that they’re a mess hardly worthy of further investigation, but there remain plenty of ways in which your business could benefit from them. It’s important to remember that there is no one central way of doing this and that what you can apply for and what you can receive may depend on what your company does, its size, and its exact location. But as we’ve seen elsewhere, the cost savings and reputational enhancement that come with taking these steps are already reaping rewards for companies who can make that step, and both grants and other forms of funding could open up opportunities for businesses keen to do the same. Greater energy efficiency is the future of business, the world over, and you can take your first steps towards it by exploring what options are available to your company today.