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Are you a business that prioritises sustainability? Here’s what tax reliefs you can claim .

The choice to invest in Environmental, Social and Governance objectives (ESG) and sustainability is becoming increasingly more popular for business owners at any and every level.   

If you do decide to overhaul your business processes and purchase new and greener assets, you will be presented with a substantial cost to your SME or business if you do not have a large cash reserve.   

HM Revenue & Customs (HMRC) has a range of allowances in place for businesses which invest in green practices, encouraging sustainability whilst highlighting the penalties if you fail to comply with regulations. 

Non-compliance will be penalised 

If you are a business, and do not actively invest in sustainable working practices, you will still be required to meet specific requirements – these must be met to avoid potential penalties.   

Understand the sanctions you might encounter if you fail to abide by environmental regulations or, possibly, cause damage to the environment through your business operations.   

The sanctions you could face include: 

  • The Climate Change Levy – this is a tax on the amount of energy (such as electricity) that your business uses.  
  • The Landfill Tax – this is a charge based on the amount of waste your commercial or business operation contributes to landfill and is charged by the tonne.   
  • The Aggregates Levy – this is 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.   

Investment in green schemes 

The Government has lots of schemes that they put in place, and these facilitate investment in environmentally friendly commercial operations.  

Arguably, this simplifies the process for your SME or startup business to ‘go green’ from the offset. 

Using these schemes removes the need for major expenditure on sustainability in the future.   

The Annual Investment Allowance (AIA) does not explicitly target sustainable spending, but it does allow your business to deduct the full value of qualifying equipment from your profits before you pay tax.   

You will benefit your business, by using the AIA when you invest substantial sums in environmental equipment and policies, as this can be a costly choice to make.   

Enhanced Capital Allowances (ECAs) will also provide a form of 100 per cent first-year allowance for investments in energy-saving equipment. 

This 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).   

What about electric vehicles? 

Electric vehicles (EV) are increasing in popularity, due to their efficiency, quality, and emission-free journeys.  

It is important to remember that they can be costly, but you can benefit from these and reduce the financial burden of this aspect of green spending.    

EVs are exempt from road tax, as this is calculated on emissions.  

Before you have even released the brake, you will have made significant savings over a petrol-powered car – particularly if you are driving a more substantial vehicle.    

You should also know that you can claim a first-year capital allowance of 100 per cent on the cost of any new and unused cars that have zero emissions.   

Your employees may also pay a lower rate of tax on benefits in kind (which include company cars).  

This is because this rate is also partially calculated based on the vehicle’s emissions and fuel type.   

How can I access green reliefs? 

Working with a greener business model can results in significant savings and will enhance your ESG objectives, allowing your business to benefit in the future. 

Whilst sustainability practices grow, reliefs and allowances will allow you to make the most of the investment you have made and keep your cash flow strong.   

If you would like to know which green allowances and reliefs you’re eligible for, or to know how to avoid falling foul of penalties, please get in touch with a member of our team today. 

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