Environmental tax initiatives and net zero targets

As we move closer to Glasgow hosting the UN Climate Change Conference, now is an ideal time to raise awareness of environmental tax initiatives that exist. A significant number of businesses are setting increasingly ambitious targets, decades ahead of the government and investing heavily in low carbon technology and services as they embrace their role in achieving the UK’s 2050 net zero carbon target.   

Tax policy can play its part in delivering these results and an increasingly rigorous and holistic ‘green’ tax policy is expected in the future. Whilst current tax initiatives are limited, some do reward businesses with a cash flow advantage, facilitating increased investment in low carbon projects and the natural acceleration of achieving net zero targets ahead of 2050, which can only be good news!

Cash flow advantaged tax measures

  • Capital allowances – To avoid exceeding certain annual limits on capital investments, 100% first year capital allowances are also available on the following low carbon investments: 
    • New-zero emission cars (plus low benefit in kind rates of 1%)
    • New electric car charging points
    • Plant and machinery for gas refuelling stations
    • Gas, biogas and hydrogen refuelling equipment
    • New zero-emission goods vehicles
  • Research and Development tax credits on technological/scientific advancements and uncertainties are available to either reduce corporation tax or provide a direct cash refund from HMRC! This will apply to a rapidly increasing number of advancements made by environmentally conscious companies striving for improvements in production, manufacture, packaging, delivery etc. The benefit can be a 130% uplift on certain expenditure, or repayable tax credits on losses, of up to 14.5%. 

The introduction of the plastics tax in April 2022 is expected to see significant investment in R&D as an estimated 20,000 manufacturers and importers of plastic packaging will be penalised if plastic products use less than 30% recycled plastic. 

Other taxes where exemptions and reliefs exist for environmentally focused businesses

  • Climate change levy on energy consumption by businesses 
  • Energy emissions trading 
  • Landfill tax on waste to landfill 
  • Aggregates levy 

Optimistically, it is hoped this list will not prove exhaustive for long!