Energy efficiency has become an increasingly hot topic for the UK commercial property industry and successive governments over the past couple of decades.
While the UK Government has sought to influence change through the introduction of incentives such as the Enhanced Capital Allowances (ECA) scheme, the issue of energy efficiency in commercial buildings is being driven through enforced regulation and legislation.
From December 1, 2015, the servicing of building air conditioning (AC) systems containing R22 refrigerant will not be allowed under rules – EU Regulation 2037/2000 – restricting the use of ozone-depleting chemicals.
The consequences for the commercial property industry could run into millions of pounds as building owners are forced to comply with the new rules.
There is, however, a silver lining to this regulation cloud.
Landlords and tenants can use the current capital allowances regime to offset the cost of compliance.
While retaining an AC system currently running on R22 would not be illegal, the regular maintenance process would prevent it from being re-charged with refrigerant.
It is, therefore, unlikely that retaining a system would be a viable option.
Modifying an existing AC system to accept a compliant replacement refrigerant is a low-cost option.
The downside of this, however, is that the modified system is unlikely to operate at the same efficiency levels.
The expense of adapting an existing system can be capitalised and the appropriate capital allowances tax relief claimed.
Replacing a complete AC system will incur the highest capital outlay but also provides an opportunity for claiming valuable tax relief in the form of capital allowances.
If the replacement system complies with the ECA eligibility criteria for air source heat pumps (ASHPs), then 100% of the cost of installing it can be claimed.
There is also the option of a 19% tax credit if the company installing the equipment is in a loss-making position
The increase in the annual investment allowance to £500,000 until January 2016 can be used to cover the cost.
An added bonus is that ASHP systems can now qualify for the Renewable Heat Incentive.
Robert Winters is capital allowances manager at north-east accountancy firm Johnston Carmichael