With the UN Climate Change Conference UK 2021 coming to Glasgow in less than 12 months time we wanted to shine a spotlight on the availability (or lack thereof) of UK tax relief to stimulate valuable investment in green technology.
The government has spent years investigating the pros and cons of how best to use the tax system to influence green technology investment in buildings and infrastructure and as we enter 2021 the jury is very much out on its success to date.
Enhanced Capital Allowances Abolition
Introduced in the Finance Act 2001, Enhanced Capital Allowances (ECAs) were meant to stimulate much needed green investment in our commercial buildings by providing 100% allowances and a 19% tax credit (reduced to 12.67% from April 2019); however, a study as early as 2008 started to raise doubts on their effectiveness.
Significant numbers of respondents were unaware of ECAs and there was no conclusive evidence that those who did (beyond Combined Heat & Power providers) would factor in ECAs into their investment decisions.
The estimated annual 3,200kT of carbon dioxide savings that could partly be attributed to ECAs accounted for less than 1% of all UK business emissions.
In 2018, the government issued a call for evidence (“COE”) to better determine how to help businesses improve the way they use energy by at least 20% by 2030 and ECAs were clearly on the cull list with an overlapping announcement to abolish ECAs from April 2020.
This means no new tax measures have been mentioned to either incentivise or change behaviours in green technology investment beyond 100% first year allowances (“FYAs) for EV charge points (due to expire 2023) and low/zero emission cars/goods vehicles.
A New Industrial Strategy
The new vision from the 2018 COE was published in March 2019 and highlighted the following areas as part of its Industrial Strategy:
Extension of minimum Energy Performance Certificate E standards to all privately rented buildings from 2023.
Ongoing consultation for tightening standards in the rented sector (including Part L of the Building Regulations).
A review of building emissions generally.
In 2014, emissions from buildings accounted for 34% of the UK’s greenhouse gas emissions, 27% of which related to commercial properties. Improved energy efficiency and building standards arising from (1) and (2) will hopefully have helped reduce this and we await the details of further studies arising from (3) with interest.
Innovation and Insulation
The UK tax system currently favours innovation in advanced component engineering, design and construction through the R&D Expenditure Credit (RDEC) system which was increased again to 13% from 1 April 2020.
Therefore, if you need to solve new problems that lead to the development of new green technologies in your built environment the RDEC is likely to be the best place to start.
Another, less known incentive, is plant and machinery allowances for ‘Thermal Insulation’. With the recent extension of the Annual Investment Allowance to £1 million could 2021 be the right time to consider assuming other relief (e.g. repair treatment) is not available?
Look out for further blog articles on green incentives and if you have any questions, please get in touch.