My business prioritises sustainability – Can I claim tax reliefs?

Investing in Environmental, Social and Governance objectives (ESG) and sustainability is becoming more popular for business owners at every level.

However, overhauling business processes and purchasing new, greener assets can present a significant cost to SMEs and businesses without large cash reserves.

In a stick-and-carrot approach to encouraging sustainability, HM Revenue & Customs (HMRC) has a range of allowances in place for businesses which invest in green practices – and penalties for those which fail to comply with regulations.

The carrot – Green investment schemes

The Government has a number of schemes in place to facilitate investment in environmentally friendly commercial operations. This makes it easier for SMEs and startup businesses to ‘go green’ from the offset, avoiding the need for significant expenditure on sustainability in the future.

The Annual Investment Allowance (AIA) does not specifically target sustainable spending, but it allows businesses to deduct the full value of qualifying equipment from profits before tax.

This is particularly beneficial to businesses investing substantial sums in environmental equipment and policies, since this can be expensive.

Enhanced Capital Allowances (ECAs) also provide a form of 100 per cent first-year allowance for investments in energy-saving equipment, which can include:

  • Hydrogen and biogas refuelling equipment
  • Electric and no-emission cars
  • Zero-emission goods vehicles
  • Equipment used for EV charging points

You cannot use this in conjunction with AIA, but it does not count towards your AIA total.

If you are investing in specialist equipment for energy conservation, you may qualify for tax relief under schemes like the Environmentally Beneficial Plant and Machinery (EBPM).

The question of electric vehicles

For their efficiency, quality and emission-free journeys, electric vehicles (EV) are enjoying a surge in popularity. They can be costly, but there are a number of ways that you can reduce the financial burden of this aspect of green spending.

EVs are exempt from road tax, which is calculated based on emissions. This means that, before you’ve even left the forecourt, you have made significant savings over a petrol-powered car – particularly if you are driving a larger vehicle.

You can also claim a first-year capital allowance of 100 per cent on the cost of new and unused cars with zero emissions.

Employees may also pay a lower rate of tax on benefits in kind (which include company cars). This is because this rate is also calculated, in part, based on vehicle’s emissions and fuel type.

The stick – Penalising non-compliance

For businesses which are not actively investing in sustainable working practices, there are still certain requirements which must be met to avoid penalties.

Business owners should get to know the sanctions they may face if they fail to abide by environmental regulations or cause damage to the environment through their business operations.

These may include:

  • The Climate Change Levy – A tax on the amount of energy such as electricity that a business uses.
  • The Landfill Tax – A charge based on the amount of waste a commercial or business operation contributes to landfill, charged by the tonne.
  • The Aggregates Levy – A levy paid on commercially exploited aggregate (rock, sand or gravel), unless recycled, composed of more than 50 per cent exempt materials, or made from an exempt process.

Accessing green reliefs

In the long term, working with a greener business model can incur significant savings and enhance your ESG objectives.

In the meantime, reliefs and allowances can help you to optimise the investment you have made and keep cash flow healthy.

As such, we always advise that you receive expert support to get a better view of your business operations and strategy – and identify your capacity for sustainable spending.

To find out which green allowances and reliefs you’re eligible for, or to avoid falling foul of penalties, please contact a member of our team today.