Are you looking for information on utilising the super-deduction to invest in energy efficiency, then you are at the right place? The unhealthy cocktail of increasing energy bills, the climate change levy, considerations for carbon footprint, and corporate social responsibility has got businesses exploring ways to respond.
In the spring budget of 2021, the Chancellor announced that temporarily increased tax reliefs would be introduced for the purchase of assets that met a certain criterion. This was done to encourage business investment and foster economic growth and recovery following the pandemic. In which time investment in business had fallen leading to a significant slowdown of productivity growth.
The tax relief has been positively received and its even led to parliamentarians, manufacturers and engineers calling for it to be extended to incentivise investment in green energy. Considering what we discussed the tax relief is a great opportunity for any businesses to improve energy efficiency, go green whilst getting a return on investment.
What is this tax relief?
This temporary tax relief is for specific types of business entities and applies to companies that pay corporate tax so excludes individuals, partnerships, and LLPs.
The first is known as super-deduction, you will be eligible to deduct the amount you invest in qualifying new plant and machinery assets from the taxable earnings you report beginning from 1st April 2021 and continuing through to the 31st of March 2023.
A deduction of 130% on the first year’s capital allowance for investments in plant and machinery are eligible. For example, if a company were to spend £1000 on energy efficient lighting, they can therefore claim a deduction of £1300 against their taxable profit.
According to the HM Treasury you can reduce the amount of tax you owe by up to 25 pence for every pound you invest whilst the corporate tax rate is 19%.
There is also the 50% First Year Allowance.
What Spending Qualifies?
When establishing a company’s eligibility to claim capital allowances, the term “plant and machinery” refers to the majority of the tangible capital assets used in the operations of many businesses. For our context, this includes both energy efficiency and renewable energy technology. The following types of assets are eligible for the deduction:
- Solar panels,
- Energy-efficient lighting
- Hardware and software for computers and servers,
- Tractors, vehicles, vans,
- Ladders, drills, cranes,
- Electric vehicle charge points,
- Refrigeration units,
- Compressors.
What are the requirements?
You are only allowed to make purchases of brand-new, never-before-used machinery and they must be purchased between 1st April 2021 and 31st March 2023, and only for contracts signed after 3rd March 2021. The Hire Purchase method of financing is an alternative to leasing, which is not an option for funding assets.
We’ve touched on the tax relief available and will now go on to explore some energy efficiency options. Please note as non-tax professionals we advise you to discuss specifics with your accountant and tax advisor who can specify how your individual business would benefit from this tax relief whilst investing in energy efficiency.
In the interim, there is a useful online calculator to ascertain prospective tax savings available with the super deduction relief, here.
Going Green – Why install Workplace EV Charge Points?
Electrical vehicles (EV) are the future and whilst the charging infrastructure is improving, a lot is yet to be desired by EV owners. So, by installing EV charge points you are future-proofing your workplace whilst supporting your green and carbon reduction objectives. Such objectives will become more and more pressing when considering changes and policies from the government around the use of petrol and diesel cars.
What’s more, as EV drivers want to charge it will certainly help with your employee retention and attracting the right talent for your business.
EV cars reduce emissions and by extension help cut the businesses costs through exceptions on fuel duty, company car tax, road tax and car benefit charge. The benefits of investing in workplace EV charge points therefore are not exclusively non-financial.
What’s more, the Workplace Charging Scheme is available to support towards the upfront costs of purchasing and installing of EV charge points. More details can be found here.
Going Green – Why install LED lighting?
The cost savings from implementing LED lighting are tremendous as we’d established on the energy saving tips article by using prospective cost saving figures from reduced energy consumption. It’s also notable that LED lighting last longer than their traditional counterparts so it saves the hassle of replacement and purchasing new bulbs.
What’s little known but interesting about traditional halogen bulbs is that they contain mercury which can be hazardous particularly when handling broken lighting and LED are free from this.
Aside of the above benefits introducing LED lights improves energy efficiency, reducing your carbon footprint and climate change levy. What’s more, you have many more options with LED including the warm white or daylight bulbs, the colour changing features and the increasingly popular smart functionality.
Going Green – Why install solar panels?
Reducing your reliance on the national grid, the most obvious reason for introducing this renewable energy source would have to be reducing energy bills!
Led by the government until 2019 you were able to sell excess electricity generated via your solar panels to the National Grid, known as the Feed in Tariff scheme, new applications were closed on the 1st April 2019. However, with the energy price increases using and conserving any electricity generated would seem like a reasonable solution particularly with the tax relief incentive.
