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Taxation

Green taxes, reliefs, and schemes for businesses

Green taxes, reliefs, and schemes for businesses
Hiten Patel

By Hiten Patel

28 Jun 2022

There are many reasons why a company may seek to improve their sustainability credentials. The push for net zero across global markets has prompted many firms, from brand new ventures to established businesses, to take stock of their own carbon footprint. Plus, public demand for planet friendly goods and services is at an all-time high.

However, a further motivation for businesses to go green are the significant savings to be made through green tax incentives and schemes which are available to firms who take steps towards lowering their pollution and waste levels.

The availability of green tax relief and schemes for businesses differs depending on their size and remit. Below, we will take you through an array of options which are crucial to explore for businesses in 2022.

Enhanced capital allowances

Enhanced capital allowances (ECAs) are just one example of the many green tax relief schemes now available to companies across the UK. Under this scheme, businesses that implement environmentally friendly changes within their operating framework can claim a 100% first-year capital allowance against purchases including energy-efficient machinery and water-saving devices. This incentive for positive and permanent change in a business’ approach to its climate strategy is particularly useful for new companies who may incur hefty start-up costs related to purchasing equipment or SMEs who are looking to make upgrades which are both cost-effective and futureproof.

Energy-efficient vehicle allowances

Many businesses rely on company cars to keep their operations moving. Through tax incentives, companies are being rewarded for keeping carbon emissions low across their fleet of vehicles. For new cars with zero to low carbon emissions, companies can claim the full value of the car through first-year allowances. The tax benefits decrease as the carbon emissions of a vehicle increase. Subsequently, these capital allowances render the move to electric or low carbon cars an attractive investment prospect for businesses, particularly SMEs, as their purchase makes sense for both the health of a business’s finances and the planet.

Climate change agreements

Climate change agreements (CCAs)are a further route for businesses looking to reduce both their financial outgoings and carbon footprint. A vast and diverse range of industry sectors are eligible for a CCA, from ceramics to meat. The agreement comprises a voluntary deal made between a business and the Environment Agency. The goal of this arrangement is to moderate the energy use and carbon emissions of commercial entities. If companies can deliver on their end of the agreement, they become eligible to receive a sizeable discount on the climate change levy (CCL); a tax added to commercial electricity and fuel bills. Savings of up to 90% for electricity and a 65% reduction for gas are available, depending on the level of intensive energy use.

Emissions trading

The EUs Emisionas Trding System (EU ETS) allows energy-intensive companies to both buy and sell greenhouse gas emission allowances in the marketplace. In order to participate in the EU ETS, a firm is required to meet ambitious emissions targets by either cutting their output or by trading the emissions allowances. There are a number of ways in which a company could do this. These include engaging in direct trade with other businesses, buying and selling through an external party including a specialist trader, or even bidding at EU member state auctions. The scheme is designed to incentivise pollution reduction early on in a business’ inauguration into the scheme. By doing so, a business is able to take advantage of the opportunity to accrue surplus emissions allowances, and then sell them on. In addition, there are low administrative costs related to emissions trading, alongside the capacity for reducing, tracking and reporting emissions, thus holding the enterprise to accountability.

Research and Development tax relief

Through spending long durations on unpredictable projects in a bid to cultivate solutions for climate change, companies in sectors such as energy or construction, for example, can accumulate hefty bills through experimenting to find the optimal solution. Businesses in this position, both large and small, are eligible for research and development (R&D) tax relief. SMEs who demonstrate a focus on developing sustainable solutions within their operation could expect to be granted tax relief of up to 44% on the qualifying outgoings.

There is a myriad of challenges facing the negotiation between advancing business and protecting the climate. However, governments across the world are devising new strategies to incentivise businesses in their bid to decarbonise their supply chains: tax relief and recompense schemes are two of them. This article has covered a few examples of the help available for businesses, but there are many alternatives out there to explore further in order to aid you in revamping your business’ climate strategy today.

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