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With sustainability at the forefront of the political agenda, businesses are facing increasing pressure to reduce their carbon footprint and become more environmentally conscious. Aside from the obvious benefits to the planet, going green can also provide considerable tax savings for businesses.
We take a look at two of the tax saving schemes currently available to UK businesses.
Cycle To Work Scheme
In a bid to reduce the number of carbon emitting vehicles on the road, the government introduced the
Cycle to Work scheme, which incentivises bicycle travel by providing employers and employees with an opportunity to reap some of the associated tax benefits.
Employers may choose to operate a salary sacrifice scheme where they will pay for the bike and any additional equipment, (such as a helmet), on behalf of the employee. In turn, an agreed amount will be deducted from the employees’ gross pay each month. Employees have the option to buy the bike from the company at its second-hand value in the future.
Providing a company cycle is a considered an exempt non-cash benefit (benefit in kind) so the employee will not suffer any tax disadvantage from the scheme. In fact, both employers and employees will benefit from reduced National Insurance contributions on employees pay. For the scheme to be tax exempt it must be offered to all employees and the bike must be used primarily (50% or more) for work journeys.
HMRC states that employers should use a ‘common-sense’ approach when considering what bikes and equipment are permissible. For example, this may include pedal bikes, electrically assisted bikes, safety kits and repair kits.
The purchase of bikes and equipment is considered capital expenditure so will qualify for
capital allowances such as Annual Investment Allowance or writing down allowances. It should be noted that if the company is VAT registered, then full VAT relief is available.
Electric Cars
Electric cars are growing in popularity and the tax incentives available are part of the reason why. If an employer provides
fully electric company car, the resulting taxable “benefit in kind” is typically very low. For the 2022/23 tax year, the benefit would be just 2% of the vehicle’s list price. This means that the tax position for the employee is considerably better than a petrol or diesel version of a vehicle of the same specification.
For example, a £50,000 electric car would result in a benefit in kind of £1,000 for 2022/23. For a basic rate taxpayer, the tax cost is just £200 per year. Taking a comparable petrol-powered vehicle with CO2 emissions of 100g/km, the tax cost to the employee would be £2,500.
From an employer perspective, the benefits of providing electric company cars rather than petrol or diesel continues, with a reduction in Class 1A NIC contributions due on the former. Further to this, if the vehicles are purchased outright, and are new and unused, the business can write off the full cost value against the profits of the same period by virtue of 100% First Year Allowances.
For limited companies, if the same £50,000 electric car was purchased, the reduction to the company’s tax bill would be £9,500.
Further tax write offs can be claimed by the business if an electric charging point is installed at their premises. If the employer pays to charge an employee’s electric company car, then no fuel benefit arises for the employee either given that electricity is not defined as “fuel” for company car tax purposes.
If the business opts to lease an electric car rather than purchasing one outright, it can obtain full tax relief on the lease payments made. This differs from the partial restriction of tax relief available with carbon emitting vehicles exceeding certain CO2 levels.
As environmental pressures continue, businesses have an obligation to consider how they can become sustainable. In addition to tax savings, a reduced carbon footprint can enhance overall customer perception, leading to growth and ultimately, longer-term profitability.
If you have any questions about environmental tax savings, please contact your
local Moore advisor.