Great Big Green Week: How Businesses Can Be Energy AND Tax Efficient

It’s Great Big Green Week and a lot of businesses are talking about what they are doing to be green and reducing their carbon footprint, and we’re no different. Check out our Instagram post which talks about how Indigo Green is helping to reduce carbon emissions within our business.

But if you’re wondering how you can be green within your business, read on for some of the key areas where you can do your bit.

Solar Panels & Batteries

If your office has a nicely open roof that points generally in a southern direction, you could install solar panels onto your roof and harness the power of the sun to provide power to the office. The costs of installing solar panels is fully tax deductible, so your tax liability will reduce. You then have a dual benefit of seeing a reduction in your electricity bills due to the solar generation.

If you have a large enough roof that you can generate an excess of power, you could consider installing batteries to store excess power for use at another time when the sun may not be shining so brightly. Again, batteries are fully tax deductible so you’ll see a reduction in tax charges.

Other heating and cooling measures, such as ground source heat pumps and wind turbines can also be installed to improve energy efficiency.

Electric Cars

You’ve probably seen a huge increase in the number of electric cars out on the roads and part of the reason for that is HMRC incentivising businesses to invest in electric cars. Cars are notorious for attracting very little in the way of tax advantage, and over the last decade or so the company car ‘benefit in kind’ tax charge has skyrocketed, making it highly tax INEFFICIENT to run company cars. That’s all change with electric cars.

If you buy a brand new electric car in your business you can claim 100% ‘First Year Allowance’ in the year of purchase. So if your new electric car costs £50,000, your taxable profit is reduced by £50,000, saving you up to £12,500 in corporation tax. You still can’t reclaim VAT on the cost of the car, unless it is used 100% for business purposes.

But you may not want to buy an electric car, but lease instead. Here, the lease costs are fully tax deductible in the year, and you can reclaim 50% of the VAT on the lease invoices.

Benefit in kind charges on electric cars is where you see a huge difference to conventional petrol or diesel cars. Electric cars attract a benefit in kind rate of just 2% in the 2023/24 tax year (and for the next couple of years after that at least). So if you have that £50,000 car, the benefit is just £1,000, meaning your company will pay £138 in Class 1A National Insurance for providing a car to an employee for personal use. The individual will then pay personal tax on that benefit at their marginal tax rate - so £200 for a basic rate tax payer, or £400 for a higher rate tax payer. Compare that to a petrol or diesel car which have benefit in kind rates up to 37%. A comparable car costing £50,000 as a petrol would cost the company more than £2,500 in Class 1A and the individual at least £3,700 in personal tax. Overall, electric cars could provide up to a 95% reduction in tax charges.

And what about charging? Well, if you put a car charging point on your office, you can claim Annual Investment Allowance against that, so it’s fully tax deductible in the first year. The costs of charging the car are also fully allowable and VAT that’s charged on it can be reclaimed - and it’s even better with solar panels so you get car charging for free! If you’re out and about and charging, those costs are tax deductible and you can reclaim the VAT on that charging (note you’ll always be charged 20% on public charging, but charging at home or the office may be at 5%).

Lighting

Over recent years there has been a drive for businesses to change their office lighting to low energy LED lighting, and you’ll sometimes find there are grants available to help with the cost of switching your lighting. Any costs you do incur in switching from traditional lighting to LED can be offset against your profits, reducing your corporation tax.

Carbon Offsetting

If you’ve done all that you can to improve your energy efficiency within your business, and you still find that you’ve got more that you want to do, you could consider Carbon Offsetting. This is a process of supporting initiatives such as reforestation and renewable energy projects. At Indigo Green we’re on a journey to make this part of our day-to-day processes, and we’ve started with tax returns - every time we file a tax return, a tree will be planted through our partnership with Ecologi. Check out our growing forest at ecologi.com/indigogreen. If you sign up for Ecologi using the link on our page, we get more trees planted in our forest as a thank you!