IS IT TIME FOR BUSINESS TO THINK GREEN? (25/03/09)
The banking collapse may have relegated environmental matters to the back pages, but there are still benefits to be had from thinking green
Like them or loathe them, green policies have become increasingly important in the last few years. With Government setting the agenda for housebuilders to reduce their carbon footprints and green groups lobbying on a daily basis to get their messages heard, the environment – and how to protect it – has moved from the shadows into the mainstream.
The environmental debate has shrugged off its hippy image and is now globally recognised as vital for the long-term good of the planet – and the quality of life of the people who live on it.
But environmental policies generally come at a price. In times of recession, business survival is the number one priority and green policies and the whole green agenda have been relegated behind the thousands of column inches taken up by the banking collapse.
And yet there are still high profile green campaigns in progress. Protesters have maintained their vigil against the building of a third runway at Heathrow airport while only recently Business Secretary Lord Mandelson, while somewhat ironically arriving at a ‘Low Carbon Summit, was covered in green custard by a protester.
Despite increased awareness of the need to ‘think green’ (a recent survey found that 82 per cent of UK businesses are now implementing steps towards tackling environmental issues), given the current economic position, the reality is that the take-up has slowed – there are other more pressing matters at hand, not least business survival.
“The problem,” says Andrew Miles, partner at Burgess Hodgson, “is that businesses won’t be green naturally. The moves to being more environmentally-friendly are typified by the carrot and stick approach – in many cases, it is more stick than carrot.”
So why should businesses think about adopting green policies? Firstly, and put simply, because they have to. Regulations and legislation demands, in certain areas, that environmental procedures are put first – hazardous waste disposal being a good example. There are also planning rules demanding ‘green’ travel policies (avoiding plane travel, for example) and building regulations requiring increased thermal insulation.
These are the ‘stick’ approach. But there are genuine business benefits that could be counted as part of a business’s Corporate Social Responsibility and also afford some ‘positive’ public relations coverage. Powering your business with ‘green energy’ (solar and wind power) for example is one way of demonstrating a commitment to the environment; so too are car sharing schemes for getting to work or reducing the waste a business sends to landfill. Sometimes, it’s as simple as turning off the lights.
Then there are the financial benefits (which we deal with in this article). “We know that often businesses struggle to find time to put new measures into practice, but there is also a lack of awareness about exactly what tax breaks are afforded to them,” says Andrew. “They can save a substantial amount of money by keeping up to date with the latest environmental regulations – and talking to an expert like Burgess Hodgson to help them through the minefield of information.”
Enhanced Capital Allowances
The Enhanced Capital Allowance (ECA) scheme (www.eca.org.uk), for example, is a key part of the Government’s programme to manage climate change, and is designed to encourage businesses to invest in energy-saving equipment.
Introduced in 2001, the scheme is designed to encourage businesses to invest in low carbon, energy-saving equipment. As part of the Climate Change Levy Programme, it’s designed to help the UK reach its Kyoto target of reducing carbon emissions by 20 per cent.
There are three ECA schemes that provide enhanced tax relief for spending on equipment that has environmental benefits: energy-saving equipment, water-efficient equipment and low carbon dioxide emission cars. It may also cover things you might not expect such as boilers or heating systems.
In some cases, under the new Capital Allowance rules from April this year, certain equipment qualifying as energy efficient could mean the difference between recovering a 10% allowance or a 100% allowance.
But it’s worth remembering that since April 2008 businesses now receive an Annual Investment Allowance of £50,000 that allows them to write off 100% of the cost of equipment in the year of acquisition. This may well mean that Enhanced Capital Allowances are not relevant for firms that are spending less than £50,000 on new equipment each year.
Transport is the fastest growing source of greenhouse gas emissions in the UK, and commuter and business travel constitutes nearly 40% of all miles driven by car.
Measures to reduce vehicle use, or changing company cars for more carbon-efficient models, can be important for any business seeking to make its operations more sustainable.
Almost a quarter of new cars now claim a CO2 rating of less than 140g/km. Those with a figure below 120g/km accounted for one in 20 sales in 2008 – it is thought that there would have been more, given a better supply.
• Road tax
Cars with CO2 emission figures below 100g/km qualify for a free band A tax disc. Band B cars emitting up to 120g/km pay only £35 annual vehicle excise duty a year, compared with £400 for band G vehicles that emit more than 225g/km.
In addition to the Road Tax changes there is the so-called ‘Showroom Tax’ due to be introduced from April 2010. This will be an additional tax payable in the first year of ownership of a new vehicle.
For the highest emission vehicles, this will mean a first year tax payment of £950 with annual Road Tax payments of £455 per year thereafter.
• Capital allowances
April 2009 will see changes to the Capital Allowances on vehicles. For the first time, the capital allowances available on all cars will be dependent on the C02 emissions.
The 100% allowance in the first year for low emission vehicles has been extended to 2013 but the emission limit has been reduced from 120g/km to 110g/km.
For cars with emissions of 111g/km – 160g/km these will be treated the same as normal plant and equipment and will be subject to an annual capital allowance of 20% of the cost.
For high emission vehicles, defined as those with emissions over 160g/km, they will be subject to an annual capital allowance of 10% of the cost.
In addition, high emission vehicles do not qualify for a balancing allowance or charge when the vehicle is sold. Previously, on vehicles costing over £12,000, an additional tax allowance or disallowance would be available when the vehicle was sold. In some circumstances this will have a significant impact on the timing of the tax relief obtained.
If these changes are not altered in the coming Budget, then in future buying a new high emission car and not replacing it will mean that, after 10 years, you will still be waiting to get relief on 35% of the original cost regardless of whether the car has been scrapped or not: even in 20 years, you will still have 12% unrelieved. In some cases, unincorporated businesses may fair better than limited companies.
While these changes may not be good news for businesses looking to purchase a high emission vehicle there has been a simplification of the tax rules for businesses that lease vehicles that may make leasing a more attractive option.
• Car benefits
The tax cost, to employee and employer, of providing a company car has been based on CO2 emissions for a number of years. There is also an additional benefit, based on CO2 emissions, if private fuel is provided.
There will be further changes to the car benefit rules in April with the intention of encouraging green practices.
To encourage the use of low emission vehicles, the percentage cost used to calculate the taxable benefit has been reduced to 10% (13% for diesel). In this case, the definition of a low emission vehicle is 120g/km or lower.
Over recent years, the tax cost of providing a private fuel benefit to employees has increased significantly with a further increase due in April. In most circumstances, depending on the number of private miles, it is now more tax efficient for the fuel benefit to be removed.
Landfill Tax is an environmental tax paid on top of normal landfill rates by any company, local authority or other organisation that wishes to dispose of waste in landfill. It is intended to encourage alternative means of waste disposal, such as recycling, by reflecting the environmental costs of landfill use more accurately in its price.
It is landfill operators who are liable for the tax - the costs are passed on to users through higher prices. Landfill Tax operates at two rates: a standard rate of £24 per tonne for active waste (substances that either decay or contaminate land - which includes household waste); and a lower rate of £2 per tonne for inert materials.
From April 2008, the standard rate increased by £8 per tonne per year until at least 2010-11. For the lower rate, there was an increase from £2 to £2.50.
One of the solutions for companies is to consider recycling a greater amount of their waste material. Various recycling organisations can provide help and advice on how, what and where to recycle materials.
Contaminated land and tax relief
The Government has introduced an accelerated payable tax credit for costs incurred by companies in cleaning up contaminated land sites.
Contaminated land sites can have significant negative impacts on the environment, local households and businesses. They provide a significant barrier to redevelopment of the land. Businesses can claim relief from corporation tax if they clean up contaminated land. The rate of relief is 150% of the qualifying clean-up cost.
You need to claim for land remediation tax relief in your tax returns. If your company makes a loss because of spending money on cleaning up land, you can apply for a tax credit of 16%.
There are some very practical and cost-effective ways that businesses can improve their green credentials – and save money at the same time. If you’re interested in finding out more about any of the above, contact Burgess Hodgson on 01227 454627 – and see whether it’s worth going green.
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