As a small business owner, embracing environmentally friendly practices not only supports a sustainable planet but can also unlock significant financial benefits for your business.
It is important to explore the tax reliefs and allowances available to your business when you adopt green operations so that you can navigate and mitigate your environmental tax responsibilities effectively.
Understanding environmental taxes and reliefs
Environmental taxes are designed to encourage businesses to operate more sustainably.
Depending on your business type and size, you may be eligible for certain tax reliefs or exemptions.
These are particularly applicable if your business:
- Consumes significant energy due to its operational nature.
- Is a small enterprise with minimal energy usage.
- Invests in energy-efficient technology.
Proactively engaging in schemes that demonstrate your commitment to efficient operations and reduced environmental impact can also lead to substantial tax savings.
Speak to your accountant if you are unsure if these criteria apply to you.
Navigating the Climate Change Levy (CCL)
The CCL is a tax imposed on the use of electricity, gas, and solid fuels, such as coal.
Typically, businesses in the industrial, commercial, agricultural, and public service sectors are subject to the main rates of CCL, which you will find itemised on your energy bills.
However, there are notable exemptions, including:
- Small-scale energy consumers.
- Domestic energy users.
- Charities engaged in non-commercial activities.
Additionally, certain fuels are exempt under specific conditions, like renewable electricity generation or in certain transport scenarios.
If your business is energy-intensive, you could qualify for significant CCL rate reductions by entering into a climate change agreement with the Environment Agency.
It is advisable to consult with your accountant to determine your eligibility for CCL relief as non-compliance could lead to penalties.
Capital allowances and reliefs
Small businesses can claim capital allowances when investing in energy-efficient or low/zero-carbon technologies, thus reducing taxable income.
In this case, you are entitled to deduct the full cost of qualifying new and unused eco-friendly assets from your pre-tax profits.
These assets include, but are not limited to:
- Electric vehicles.
- Gas refuelling equipment.
- Equipment for use in freeport tax sites.
Understanding and claiming these allowances can significantly decrease your tax liabilities, boosting your financial health.
Embracing a greener path for business success
Failing to adopt green practices can lead to increased tax obligations, such as higher rates of CCL and Carbon Price Support (CPS) for using non-low carbon technologies.
Neglecting available reliefs and allowances, therefore, not only increases operational costs but also affects your competitiveness in an increasingly eco-conscious market.
To discuss environmental taxes and reliefs with a professional tax adviser, please get in touch.
