We know small business.
February 27th 2024

Green tax breaks for businesses

We do a lot of work for Scottish SMEs who operate in the renewable energy sector, and we are positive about the prospects for the industry, given the need for business and society to play its part in tackling climate change.

In the UK there are certain tax breaks available to businesses which are designed to incentivise behaviour that helps this agenda. Generally, these tax breaks are available to all businesses – not just those operating in the renewable energy sector.

Let’s review three of the main tax breaks available to SMEs which help to promote environmentally sustainable behaviours.

Capital allowances

Businesses investing in energy efficient or low-carbon technology can claim Enhanced Capital Allowances (ECAs).

ECAs provide 100 per cent first-year tax relief on investments in qualifying energy-efficient and low-carbon technology to promote sustainable practices. Qualifying investments include:

  • Electric vehicles and those emitting no CO2
  • Equipment for gas refuelling stations, such as pumps and storage tanks
  • Refuelling apparatus for gas, biogas, and hydrogen
  • Zero-emission commercial vehicles
  • Charging infrastructure for electric vehicles
  • Equipment and machinery for operations within a Freeport tax area, applicable to companies

(More info on the GOV.UK website).

With a 25 per cent main rate of Corporation Tax now in place, a claim in respect of a qualifying investment of £100,000 may reduce a business’s tax bill by £25,000 in the year of investment.

In recent times we have seen the introduction of ‘full expensing’ and the retention of the 100 per cent Annual Investment Allowance for spends up to £1 million per year. Both will enable many businesses to access 100 per cent relief on certain capital spend without recourse to ECAs.

Nevertheless, ECAs still have a role to play, particularly in scenarios where a business cannot claim full expensing (full expensing is available only to limited companies, not, for example, partnerships, and may be restricted where there is insufficient profit) or where, due to the scale of capital spend, the business has used up its Annual Investment Allowance.

Land Remediation Relief (LRR)

LRR enables companies to claim additional relief for the cost of remedying contaminated land. The relief provides an enhanced deduction against profits of 150 per cent of the qualifying spend.

We have assisted clients to make successful claims to LRR, the typical scenario is where a business is developing commercial property on a brownfield site.

Research & Revelopment – green technologies

Research & Development (R&D) tax relief is available to companies that are engaged in activity aimed at resolving scientific or technological challenges which extends to R&D activity in the ‘Greentech’ space.

A number of our clients are engaged in these types of activities; indeed, Scottish businesses are very much at the forefront of efforts to move to a net zero economy.

In the UK, the two existing R&D tax credit schemes are in the midst of a significant overhaul at the moment. A new ‘merged’ scheme is due to come into effect for accounting periods beginning from 1 April 2024. Under the new scheme companies with qualifying R&D expenditure will (broadly) be entitled to credit worth 16.2 per cent of the qualifying spend, with a more generous 27 per cent rate available for ‘R&D intensive’ SMEs.

We work in partnership with leading R&D advisory firms to assist clients who undertake relevant R&D activities.

If you’d like to read more about our work within the renewables sector, click on one of the links below:

Alternatively, contact your local Scholes CA branch to find out how we can help you reduce your tax obligations and for advice on the capital allowances you could claim.


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