|Don't "Miss the Bus" on Tax Allowances |
for energy saving schemes
In this article we will look at some of the tax incentives available to businesses looking to invest in the environmental and renewables sectors in the UK. But first I would like to ask you the following question: "How often do you consider "tax relief" when thinking about an environmental project or renewable energy/ energy saving project for your business"?
Let's be honest many of us would have to reply; "never" or "rarely". But, if so we are making a big mistake.
The truth is that UK Government offers a wide range of tax incentives aimed at encouraging investment in the environmental and renewables sectors. However, despite the existence of these incentives, very few companies, both those supplying services or products (who could benefit) and the end-user's advisors who could be economically justifying their projects through them, are failing to exploit them to their full advantage.
There are a number of such tax incentives available, but in this article I will cover just three of the most likely to be useful. These are Land Remediation Relief (LRR), Enhanced Capital Allowances, and Research and Development (R&D) Tax Relief.
Land Remediation ReliefLand Remediation Relief (LRR), is a 150 percent tax relief for remediating contaminated land.
Due to the lack of appreciation of this relief, there are likely to be many commercial owners of what they may concider to be "problem sites" which are thought by their owners to be too costly to remediate and where development appraisals have been made which without any knowledge of LRR which did not appear to be feasible for economic clean-up. However, when the Land Remediation Relief tax incentives available for remediating such sites this can often have such a significantly beneficial impact on the development cost outcome, that remediation becomes viable.
The key point here though is that with the right tax planning schemes which seemed to be non-starters, can become comfortably profitable, once an owner, developer, or investor is aware of these tax benefits. A greater awareness of the tax incentivewould have positive implications for many types of industries including, demolition contractors, land remediation and environmental waste consultants, asbestos removal contractors, Japanese Knotweed specialists etc., in fact all those involved in remediating contaminated land, and building the properties most likely to replace the previous industrial use.
Enhanced AllowancesThen there are Enhanced Capital Allowances (ECAs), which are a 100 percent up-front tax relief for companies investing in energy, or water, efficient technologies
The Carbon Trust has funds it makes available from the UK exchequer, for investing in energy efficiency measures. The sorts of projects which may qualify include energy efficient light fittings, boilers, combined heat and power plant etc. So, always check that there is no grant which can be applied for and obtained, before embarking on such projects.
Contractors quoting for projects which involve replacing less efficient equipment with more efficient up to date technologies, should also be highlighting the manner in which the capital cost of their product can be offset against the company's tax bill, quite possibly in addition to the receipt of a Capital Trust grant. When this benefit is combined with reduced running costs, a dramatic reduction in the payback period of the product/ energy efficiency work, becomes possible.
So, don't forget the Enhanced Capital Allowances, and that 100 percent tax relief which is available to companies investing in energy and water efficient equipment. Even if the company purchasing the equipment was loss-making and could not use the capital allowances directly, they can still claim a cash rebate from HMRC equating to 19 percent of the loss generated from investing in the technology.
Enhanced Capital Allowances are available for all kinds of energy and water efficient technologies from rainwater harvesting systems at one end of the scale right up to huge waste to energy plants at the other. But, were you aware of the true value of these incentives?
R&D Tax ReliefResearch & Development Tax Relief (R&DTR) is a tax relief of up to 175 percent available on certain costs relating to R&D activities, such as the development of new recycling or energy from waste (EfW) techniques.
Engineering technology providere to the waste management industry are by necessity developing new technologies for the treatment of waste and those same companies are also likely to be improving and enhancing existing technologies. The money spent development these technologies may attract R&D tax relief. For small and medium sized entities developing these technologies in-house, 175 percent of development costs (ie staff costs, utilities and materials) will be available as a tax deduction against profits. Alternatively, if acting as a contractor for a larger entity, 130 percent of these costs will be available as a tax deduction.
Here, as well, if these deductions are factored into tenders at the outset, the attractiveness of the offer or proposed project is improved.
Summing up...You may well ask: "Why, with all these incentives available to business, why are they not more widely taken advantage of?"
There are 3 main reasons for this. Firstly, and overwhelmingly, the primary reason is limited knowledge of their existence. The individuals who are responsible for initiating projects within companies that can make direct use of such tax incentives are more likely to have a property or engineering background, and not tax or accountancy expertise.
As a result, the potential tax benefits of investing in a particular project are either not known about or are wrongly not seen as the "primary driver" of the investment decision, which they may become when correctly included in cost and profit projections.
The second reason that tax incentives for sustainable investment are not more widely used is perceived complexity of obtaining the relief. There is no doubt about it that some of the tax incentives are, at best, cumbersome and onerous to obtain in practice and at worst, bewildering. Claiming ECAs for example, can be unnecessarily complex and this is, in our view, itself a significant barrier to investment.
So, we hope that you our reader will not, after reading this, suffer from the lost opportunity that a lack of take-up of the available tax incentives is meaning for many people and companies throughout the UK. Make sure that you give the right attention to these incentives, and that they are overlooked for the want of appreciating their true value. (Note: This is very much applicable to Anaerobic Digestion Schemes.)
This article is based upon an article in CIWM Journal in 2010, by Aubrey Calderwood, who is the director of tax specialists Capitus. Capitus is an investment incentives consultancy and offers a free guide on the tax incentives for sustainable development and urban regeneration. Visit www.capitusgroup.co.uk
Please let us have your comments. We are not tax experts, so please also chip in if we have made any errors in describing how these tax allowances can be applied, and Carbon Trust grants utilized.