SMEs Can Save Tax by Going Green – Part 1
First Year Allowances (FYA) to End
First, a warning for SMEs – 100% First Year Allowances (FYA) for capital expenditure for business capital assets that qualify as energy/water-saving equipment and new low emission cars (not exceeding 50g/km CO2) is due to end on the 5th of April 2020.
So, if you have plans to invest in such capital assets, you need to start the process to ensure that your costs qualify for the 100% FYA. The Chancellor may extend this deadline or encompass the current FYA within the Annual Investment Allowance (AIA) rules in the next Budget Statement, due in November – but maybe not!
Electric Business Cars & Goods Vehicles
As UK business owners know – they are able to write off the cost of purchasing cars and vans in their businesses against tax – but for cars, this write off for tax relief is based on the annual percentage of the purchase cost and is dependent on a vehicles’ CO2 emissions.
For cars with CO2 emissions between 50gm and 110gm – the tax write off is 18% pa. For vehicles with emissions above 110gm, the write off is only 8% pa. The annual write off for the first year is based on the purchase cost of the car. Thereafter, it is based on the net amount after the previous annual write-offs.
For cars with CO2 emissions below 50gm (all-electric cars) up to 100% of the purchase cost of the car is allowed for a tax write off – as a First Year Allowance (FYA). In addition, electric cars can also claim 100% FYA on the cost of installation and running costs of electric car charge points at a workplace.
Goods vehicles (i.e. vans) with CO2 emissions of below 50gm are also entitled to tax breaks. These tax write-offs are limited to business use only. Therefore, the percentage of any private use will need to be deducted from the electric vehicle’s purchase cost and the 100% FYA – then claimed on the net amount.
Other Electric Vehicle Tax Incentives
Electric vehicles qualify for zero rates of road tax and are also exempt from the London congestion charge. In addition to this, UK limited liability companies can purchase electric vehicles for use by their directors and employees. The annual income tax liability under the company car ‘benefits-in-kind’ rules for the company employee is very favourable if the company car has CO2 emissions below 50gm, or in the case of electric cars, zero emissions.
The monthly tax saving on an electric car with a P11D value of £30,000, as compared to a similarly priced petrol car with CO2 emissions of 120gm, is currently:
|20% basic rate taxpayer the tax saving is||-£ 60 pm.|
|40% higher rate taxpayer the tax saving is||-£120 pm.|
|45% additional rate taxpayer the tax saving is||-£135 pm.|
In addition to the above tax saving to the employee, there is also a further saving to the company employer – under the annual Class 1A NIC costs by switching to an electric company car.
So, given the above detailed UK tax incentives, it is now time for all UK businesses to give serious consideration to replacing business vehicles with electric vehicles, along with the necessary investment for electric charge points.
Going Green Business Assets
HMRC have published lists of what other green businesses assets can obtain 100% FYA. They include equipment that helps to save energy and water usage and the cost of gas refuelling sites (i.e. plants and machinery for refuelling gas, biogas, hydrogen, etc.) to include the cost of pumps and storage tanks.
Please contact HaesCooper Accountants if you require further information on the above matters. We will be publishing Part Two of our report to SMEs on the business benefits of ‘Going Green’ – it will follow shortly.
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