Net Zero – how tax incentives can help your business reach its goals
Net zero tax incentives can be useful tools for businesses looking to work towards a more sustainable future. A net zero strategy is not just beneficial for the environment; it can also make good business sense. Businesses that can demonstrate their commitment to the environment are more likely to appeal to consumers and other businesses.
Why net zero now matters for your business
A 2021 YouGov survey revealed that many consumers worldwide are happy to pay more for brands that address environmental issues. For example, it found that the majority of grocery shoppers in the UK are willing to pay for more expensive products that are better for the environment.
When it comes to working with other businesses, environmental accreditation is now often a prerequisite. Since 2021 businesses wishing to procure a government contract over £5 million are required to have a clear and credible carbon reduction plan, which will enable them to achieve Net Zero by 2050.
For a business making changes to become more sustainable, this will often involve financial commitments. To assist, there are several tax incentives available that can help reduce these costs. Whilst these are not limited to spending on environmental initiatives, when utilised, they can often increase the sustainability of a business.
Super deduction to reduce tax liability
Super deduction is a relatively new and currently time limited tax incentive, introduced to kick-start capital investment and boost productivity following the recent pandemic.
Businesses making expenditures on certain allowable items between 1 April 2021 and 31 March 2023 can claim first-year tax relief at 130%. In addition to this, a 50% relief is also available for certain other assets.
The super deduction deadline was at the end of March 2023, so any expenditure incurred on or after 1 April 2023 does not qualify. However, super-deduction will continue to form part of capital allowance reviews up until March 31, 2025. This gives people the ability to amend and resubmit tax returns where super deduction is available, up until this date.
A company spending £100,000 on new qualifying equipment and machinery will be able to deduct £130,000 from taxable profits with super deduction capital allowances, saving on its corporation tax bill.
A wide range of items are eligible for super deduction. Items that can be claimed against the 130% or 50% rate that assist a business through reaching its sustainability goals include:
- Electric vehicle charging points
- Heat pumps
- Building monitoring and management systems
- Solar panels
- Energy storage solutions
- Wind turbines
- Energy efficient heating and cooling systems
Many of these initiatives will also provide businesses with cost savings in reduced costs and increased efficiency.
Find more information on how to maximise the use of super deductions on our website. Alternatively, read our super deduction guide for landlords and investors.
Research and Development Tax Credits (R&D) for net zero strategy projects
Check out the August 2023 R&D tax credit changes.
R&D tax credits have positive effects on businesses due to the tax incentives. A common misconception is that R&D tax relief is only available for science and technology companies. You may not think of sustainability or net zero when you consider R&D.
There are a wide range of industries who can benefits from R&D tax credits for sustainability projects. To qualify, a business must:
- Seek to advance its knowledge
- Improves a service or product
- Solves uncertainties in the process
Furthermore, an R&D project does not need to be unique nor does it need to succeed.
Examples of projects that may improve the sustainability of a business and can qualify for R&D relief include:
- Designing/implementing new software systems
- Designing of a new software app
- Designing of new manufacturing processes
Alexander & Co has worked with clients to secure substantial R&D tax credits in all the above scenarios, as well as many others. Get in touch with our R&D tax advisors today if you would like to discuss the process of claiming R&D Tax.
Net zero strategy – company vehicles
For businesses who need company cars for their employees, updating the fleet to electric cars is an easy step to help your business reach its Net Zero goals.
Capital allowances can be claimed on cars purchased and used by a business, allowing for part of the value to be deducted from a business’s profits before tax.
Writing down allowances is used to work out what can be claimed, as cars are not eligible for an annual investment allowance. Find further information on claiming capital allowances on gov.uk.
The Benefit in Kind (company car) rate did increase from 1% to 2% on 6th April 2022, and is currently fixed at 2% until April 2025. After this, the BiK rate will increase by 1% every year until 2028.
This lower tax rate means that electric vehicles can be offered to employees at a significantly lower taxable cost than petrol or diesel vehicles. This can provide financial benefits to the employee and the company, alongside helping a business to reduce its environmental impact.
Read our tax on electric cars guide for more information.
Alexander & Co – business transformation advisors
At Alexander & Co, we provide businesses with a comprehensive range of accountancy, tax and business advice to help them thrive. If you are currently exploring how your business can improve sustainability or work towards reaching Net Zero, we can advise you on the most tax effective ways of reaching your goals.
We work tirelessly to understand how our clients’ businesses work and how best to assist their specific needs, whatever sector they operate in. Explore other business sectors that we advise in.
Get in touch with us by calling us on 0161 832 4841, emailing info@alexander.co.uk or simply filling out the form below and with the details of your enquiry and we will be in touch with you to discuss how we can assist further.
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