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 toward a more sustainable future. Becoming Net Zero is not just beneficial for the environment, it can also make good business sense. Businesses who can demonstrate their commitment to the environment are more likely to appeal to consumers and other businesses.
Why Net Zero matters for your business
A YouGov survey in 2021 revealed that many consumers worldwide are happy to pay more for brands who address environmental issues. For example, it found that the majority of grocery shoppers in 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.
With super deduction, a company spending £100,000 on new qualifying equipment and machinery will be able to deduct £130,000 from taxable profits, saving on its corporation tax bill.
A wide range of items are eligible for super deduction. Items that than be claimed against the 130% or 50% rate that that assist a business in 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.
Further information on Super Deduction can be found here
Research and Development Tax Credit (R&D) for Net Zero projects
R&D tax credits are a tax incentive to encourage companies to innovate and grow. 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 securing substantial R&D tax credits in all the above scenarios, as well as many more. Please contact Alexander & Co if you would like to discuss this further.
Read more about our Research and Development expertise and how we can assist you here
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 are used to work out what can be claimed, as cars are not eligible for annual investment allowance. Further information is available on gov.uk here.
From April 2020, the rate of company car tax, or the Benefit in Kind rate available on Electric Vehicles was slashed from 16% to 0%. From April 2021, the rate increased to 1% and for the 2022/23 tax year this increased to 2%. The rate for electric vehicles is now frozen until 2025.
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.
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.