Updated: Jul 5, 2020
Budget 2018 announced the withdrawal of enhanced tax allowances for capital expenditure on water or energy efficient plant or machinery from April 2020.
One of the few advantages of the Enhanced Capital Allowances (ECA) scheme was that businesses could check whether their water or energy efficient asset would be eligible for tax relief before expenditure was incurred. This allowed them to plan and make an informed decision at a time that suited them. It is just a shame that so much green investment expenditure never made it on to the lists and that the actual qualifying costs were so limited when they did.
Complexity, value and lack of availability have always made the ECA scheme a contentious approach to helping re-shape the built environment and reduce carbon emissions. This latest change is part of a wider shake-up on how the government wishes to encourage business to reduce waste and save energy.
Industrial Energy Transformation Fund
The money saved from the abolition of ECAs in last months budget will go into a new £315 million Industrial Energy Transformation Fund (IETF). This is expected to form part of the governments Clean Growth Strategy and the call for evidence on helping businesses to improve the way they use energy which closed in September 2018. Details on how businesses can benefit from the IETF are expected shortly.
Research & development tax credits
Companies that are involved in advanced component engineering, design or construction to incorporate alternate none traditional ‘green’ elements (eg. experimental cladding system, alternative recycling/fuelling etc) may still find relief through research & development credits.
R&D tax credit expenditure can deliver:
An R&D Expenditure Credit (RDEC) of 12% (taxable) for large companies or up to £9.72 per £100 spent
A tax deduction of 230% for small and medium sized companies or up to £33.40 per £100 spent.
To qualify as R&D, any activity must meet the definitions set out by the Department for Business, Innovation and Skills. These guidelines state that the activity must contribute directly to seeking the advance in science or technology or must be a qualifying indirect activity.
If your company and the project both meet the necessary conditions, you can claim tax relief on revenue expenditure in the areas outlined which can include staff costs, payments to contractors or vendors supplying personnel, software licences and utility costs. If you’ve spent money on something like, for example, staff costs where the employee was only partly engaged on R&D activities, you can claim for an appropriate proportion of the cost.
National and local grants
There is a range of regional incentives throughout the UK via local enterprises and partnerships to encourage businesses to invest in green technologies from loans to grant contributions. With Brexit some of the funding from these entities may be limited so another starting point for anyone interested is Innovate UK.
Innovate UK work closely with the Knowledge Transfer Network and they run competitions for grant awards which include sustainability and other initiatives.
For large companies with projects that meet the criteria, the awards can be significant (up to 50%). We understand that the process can take around 3-4mths from submission to getting any money (assuming you win) so worth monitoring and making sure your business is signed up for alerts on relevant competitions.
For further details on any of the topics covered please do not hesitate to contact us.