The UK’s tax legislation supports the adoption of green technologies through the capital allowances system which broadly seeks to give accelerated tax relief where capital expenditure is incurred on such technologies.
The tax reliefs available are as follows.
Low emission or electric vehicles
Enhanced capital allowances giving full tax relief for the purchase cost in the year of acquisition are available for certain new, low emission or electric cars which meet the following criteria.
Low emission cars
Such cars must either not exceed a carbon dioxide emissions limit of 50 g/km or must be wholly electric. Cars acquired must be new – HMRC accepts that a car is new even if it has been driven a limited number of miles for the purposes of delivery, test driven by a potential purchaser or used as a demonstrator. The relief is available for qualifying cars purchased in the period ended 1 April 2021.
As an example, for an electric car costing £50,000, corporation tax relief at 19% will be available for this amount in the year of acquisition thus giving an effect purchase price of £40,500.
Zero-emission goods vehicles
A 100% allowance is available for vehicles acquired on or before 1 April 2021 (for corporation tax purposes) or 6 April 2021 (for income tax purposes). The relief is restricted to businesses that do not also claim other state aids, such as the Government’s ‘plug-in van’ grant, towards the expenditure incurred.
In addition, a 100% allowance is available for qualifying expenditure incurred until 31 March 2019 for corporation tax purposes (or 5 April 2019 for income tax) on electric charge-point equipment for electric vehicles.
Plant and machinery
Allowances giving full tax relief in the year of acquisition are available for expenditure incurred on energy-saving plant and machinery and environmentally beneficial plant (being, currently water-conserving or quality-improving plant).
Obtaining immediate relief for such expenditure is unfortunately not straightforward. The assets on which the expenditure is incurred must be of a description specified by the Government, or meet the criteria specified by Government order for plant of that description or have a certificate of energy efficiency or environmental benefit in force. The assets are set out on Government lists which are regularly updated as technology evolves. Taxpayers should review proposed expenditure at an early stage in order to ensure that enhanced capital allowances are maximised
Given the above, it should not be assumed that technology which may sound “green”, such as solar photovoltaics, hydro power and wind turbines are on the Government lists as these are energy generating rather than energy saving and therefore outside the scope of the current legislation !
Even if assets on which expenditure has been incurred are on the lists, there is a restriction to prevent 100% first-year allowances from being claimed where certain other incentives apply, typically feed-in tariffs and renewable heat incentives. The taxpayer will effectively be allowed to choose which relief they claim though in many cases it may be preferable to receive the Government incentives and not claim enhanced capital allowances.
For loss-making companies, it is possible to surrender the element of their trading losses attributable to such allowances in return for a cash payment from HMRC, thereby reducing the trading loss by the amount surrendered. This tax credit system is currently in force until 31 March 2023.
The reliefs provided are therefore generous but ultimately accelerate tax relief as opposed to creating additional relief.