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

The government’s flagship vehicle for financing the net zero transition is now the National Wealth Fund, which has £27.8 billion to deploy in support of clean energy and growth, alongside Great British Energy for publicly owned clean power. Funding for businesses investing in green technologies opens in rounds throughout the year, and updates on what is available to your business are available on the government’s guidance page and the UK Business Climate Hub, the government’s official net zero advice service for SMEs, 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:

Scottish Enterprise Funding Calls

Scottish Enterprise runs a rolling programme of energy transition funding calls, including small capital grants of between £15,000 and £250,000. Earlier funds such as the £26 million Low Carbon Manufacturing Challenge Fund closed in March 2026, so check the live funding calls on the Scottish Enterprise website for what is currently open.

Find Business Support

The Scottish Government’s Find Business Support service brings together the funding and advice currently available to Scottish businesses in one place, including support for the clean energy transition, so it is the best starting point for checking what your business could claim.

Welsh Government

The ‘Net Zero Industry Wales’ body manages the South Wales and North East Wales industrial decarbonisation clusters, offering members expert support, events and networking rather than direct grant funding. Funding linked to the clusters flows through Innovate UK competitions, so it’s worthwhile keeping an eye on the Net Zero Industry Wales website and the Innovate UK funding service for further updates.

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 from Lloyds, Barclays offer green loans for business from £25,001 with an interest discount across a wide range of eligible green assets, HSBC offers its Go Greener SME Reward, with 1% cashback on eligible green term loans, and Natwest has Green Loans with no arrangement fee for qualifying SMEs. The British Business Bank’s Growth Guarantee Scheme also supports facilities of up to £2 million through accredited lenders until March 2030.

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. Individual funding rounds open and close periodically, so check their grants page for what is currently live.

The Low Carbon Innovation Fund

The Low Carbon Innovation Fund, now in its third phase (LCIF3), is an equity co-investment fund worth over £100 million for SMEs in the East of England who are developing or introducing environmentally beneficial technologies - note that it invests rather than makes grants. 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.

The Sustainable Business Partnership

The Sustainable Business Partnership previously offered energy efficiency grants through its Utilise Plus programme, which is now closed to new applications. The partnership still helps businesses find third-party funding and put together grant applications, so it remains a useful contact.

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.