Tax Benefits available to your Business for going green

Going green is a major topic at the moment. With concerns over climate change increasing, it is now more important than ever that companies look at how they can make their operations more environmentally friendly. To encourage businesses to cut their carbon footprint, there have previously been a number of “green” initiatives over the past few decades. Whilst the number has unfortunately shrunk in recent years, there are still some initiatives that businesses should be aware of. Whilst going green is obviously the best thing for the environment, doing so needs to also benefit the business, otherwise, it could end up running at a loss. Here, we discuss tax benefits available to your business for going green.

Focus on Vehicles

Although the Enhanced Capital Allowances scheme for energy and water-efficient plant ended in April 2020, the 100% first-year allowances for zero-emission goods vehicles and gas refuelling stations has been extended to April 2025. This means that the entire expenditure can be offset against income in the same year, giving a huge cash flow advantage.

In a move to encourage the uptake of zero-emission cars, the 100% first-year allowances have been extended to purchases of (unused) zero-emission cars. This cash flow benefit is particularly valuable for cars as these are not eligible for the annual investment allowance so would otherwise only qualify for a maximum annual writing down allowance of 18%.

If you are an employee, you will be aware that having a company car has become increasingly expensive over recent years. However, a fully electric company car only carries a Benefit In Kind charge in 2021/22 of 1% of the list price, rising to 2% the following year. This is incredibly low when compared to the top end of the BIK scale which is 37% of the list price. Additionally, there is currently no fuel benefit for fully electric cars, effectively meaning that private mileage can be enjoyed tax-free. This can either be achieved when the car is charged at the workplace or if the employer meets the cost of an electric charge card. There is also no tax charge if the employer pays for a charging point at the employee’s home.

Tax breaks for hybrid cars are lower. Cars with 1g to 50g emissions go into the main pool for capital allowances, so get 18% annual writing down allowances on the reducing balance. The benefit in kind charge is dependent on the car’s electric mileage range. If this is below 130 miles, the percentage BIK begins to rise from 4% up to 13% if the car has less than a 30-mile electric range. All of these rates increase by 1% for 2022/23.

Cars with greater than 50g emissions are allocated to the special rate pool for capital allowances and only get 6% writing down allowances on the reducing balance. The benefit in kind percentage will be anything from 15% to 37% depending entirely on emissions.

It is also worth remembering that the road tax or Vehicle Excise Duty (VED)rates for all pure electric vehicles has been set at £0 until at least 2025. There are reduced VED rates for plug-in hybrid electric vehicles (PHEVs).

What are green taxes?

In addition to offering the occasional carrot in the form of tax benefits for those opting for a greener approach, the majority of green taxes in the UK use the stick approach to discourage activities that are less environmentally friendly. We are all familiar with fuel duties and air passenger duty, but there are others specifically targeted at trying to make businesses take a greener approach.

The Aggregates Levy is designed to encourage the use of recycled material in preference to sand gravel or rock that has been dug from the ground or dredged from the sea.

The Climate Change Levy is paid by businesses on electricity, gas, and solid fuels. Its purpose is to encourage the reduction of greenhouse gas emissions.

The Landfill Tax was introduced to encourage businesses to find alternative methods of waste management that are less damaging to the environment than landfill.

The latest green tax to be announced is the Plastic Packaging Tax to be introduced from April 2022. It will apply to the manufacture or import of plastics containing less than 30% recycled material. The aim is to encourage the use of more recycled material, which in turn will encourage increased levels of recycling and reduce the use of landfill and incineration.

As the pressure on the government increases to take steps towards meeting our targeted reduction of greenhouse gas emissions, rumours are that the Autumn budget scheduled for 27 October will include some new carbon taxes.

As this article has highlighted, there are some tax benefits available for companies and employees that want to go green. There are also some taxes that seek to change our behaviour and encourage the reduction of waste and emissions the company is creating. Where possible, check to see how your business is affected. Your accountant will be able to talk you through these taxes and benefits in more detail and help you decide which may apply to you. Not sure how to get started? Speak to a specialist member of our team.