Essential green tax tips for your business

Is your business considering going green? According to the United Nations’ recent climate reports, it’s ‘now or never’ if we are to act in time to reduce emissions and pollution.

Beyond the environmental incentives, there are various financial benefits to becoming more environmentally friendly.

Tax benefits of electric vehicles

The number of electric cars on the road has surged in recent years due to significant tax and cost savings.

Providing an employee with a car available for both business and private use is considered a taxable benefit and is subject to Benefit in Kind Tax (BIK).

Electric vehicles currently have the lowest BIK rate of just two per cent for the 2024/25 tax year, compared to petrol, diesel, and hybrid vehicles.

Electric cars qualify for first-year allowances, allowing you to deduct the car’s cost from your profits before tax in the year of purchase.

This deduction can significantly reduce your pre-tax profit. It is popularly used in a high-profit year as this is when it can be most beneficial.

These allowances apply when buying outright or with a hire-purchase agreement, though Personal Contract Purchase (PCP) may not qualify.

Maximising capital allowances

Capital allowances can significantly reduce the Corporation Tax that your business pays.

The Annual Investment Allowance (AIA) allows businesses to deduct 100 per cent of qualifying plant or machinery expenditure from their profits. This includes solar panels among other energy-saving products.

Enhanced Capital Allowances enable you to deduct the full cost of qualifying eco-friendly assets from your profits before tax in the first year.

However, you cannot claim for products purchased to lease to others or for use in a rental home.

If you do not claim the full first-year allowance, you can carry over part of the cost to the next accounting period using writing down allowances.

Full Expensing allows companies to deduct 100 per cent of qualifying ‘main rate’ plant or machinery expenses from taxable profits in the same year.

Understanding the Plastic Packaging Tax

A new Plastic Packaging Tax (PPT) was introduced in April 2022. The tax applies to businesses whose imported packaging contains less than 30 per cent recycled plastic.

HMRC has confirmed four categories of packaging exempt from the tax:

You must register for PPT if you are a producer or importer handling 10 or more tonnes of plastic packaging over a 12-month period. This requirement also applies to non-UK resident businesses.

Navigating the Climate Change Levy

UK businesses are required to pay the Climate Change Levy (CCL), an environmental tax on energy usage.

Companies are charged CCL at the main rate on electricity, gas, and solid fuel use, which will be listed on your energy bill. You can reduce the main rate on CCL charges by entering into a Climate Change Agreement (CCA) with the Environment Agency.

Or to make it even easier to reduce CCL, invest in energy-saving equipment and techniques. It can be as simple as turning off equipment when you’re not using it, purchasing energy-efficient machinery, and installing light sensors.

By taking advantage of these green tax incentives, your business can save money while contributing to a more sustainable future.

So why not give it a try? If you would like more information on how you can help your business go green, please get in touch with us today.

 

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