Even if you’re not convinced by apocalyptic visions of the future resulting from climate change, you can still save money by going green, says tax expert Lesley Stalker.

Last October the Stern Review, a government study on climate change, painted a bleak picture of the future. At the time, chancellor Gordon Brown promised the UK would lead the global response.

This involved headline-grabbing measures such as ambitious targets for reducing carbon emissions, and the Climate Change Levy, imposing penalties on those who failed to act. But there has been little by way of government help – a case of focusing so much on the stick that the carrot has been forgotten.

As a result, businesses like yours are reacting slowly, and typically only see the benefits from an external branding or public relations perspective. But there are, in fact, three significant areas in which you can reduce your tax burden by going green: enhanced capital allowances, climate change agreements and company cars.

1. ENHANCED CAPITAL ALLOWANCES
If you spend or invest money on energy-saving plant machinery you can receive 100% tax relief during the year in which you acquire it. However, if the machinery is not energy efficient you would normally have to write it off over several years, receiving only 25% tax relief on it year on year.

But before you leap, it is worth noting how prescriptive the government has been in what it allows. There are 14 designated technologies, including heat pumps, pipe works, and solar systems. Furthermore, you only get relief on fixtures and fittings, not on the structural elements of a building.

However, if you are refitting or rebuilding premises, it’s great. To show how much you could save, imagine you spend £200,000 on an office refurbishment. If you did it without consideration of energy efficiency you would normally be able to write off 25% in year one and so get tax relief on £50,000. Do it energy efficiently and you receive tax relief on all £200,000 in the first year. And, if you are considering actually purchasing new business premises, investigate the availability of buying so-called  “eco-friendly” offices off-plan as this would mean you are still eligible.

2. CLIMATE CHANGE AGREEMENTS
The Climate Change Levy was introduced on April 1 2001. Rates of levy from April 2007 are:
- 0.15 per kilowatt hour for gas
- 0.99 per kilogram for liquefied petroleum gas
- 0.44 per kilowatt hour for electricity 
- 0.12p per kilogram for any other taxable commodity.

The stated aim of the levy package is to reduce carbon dioxide emissions by at least two and a half million tonnes a year by 2010.

However, it has proved very expensive for many businesses. The government has recognised that the levy could severely impede the international competitiveness of certain energy-intensive sectors. It is therefore allowing an 80% discount from the levy for certain sectors. However, in order to qualify they must first agree to challenging targets that improve their energy efficiency or reduce their carbon emissions.
Consult with your local Business Link to find out whether or not your sector has been involved in one of these agreements, and you may therefore find you are eligible for this reduction.

3. COMPANY CARS
If you are buying a low emissions car that emits less than 120g of carbon per kilometre, you can claim tax relief on 100% of the costs in the year of acquisition. Essentially this means that it is possible to buy a £10,000 car for £7,000 in year one.

There are not that many cars that fall into this very low emissions category, but the Toyota Prius – favoured by Hollywood celebrities – and Smart cars are two well-known examples of cars that do.

This can work as an employee benefit. Give an employee a £10,000 car, and they will be taxed on only 15%, £1,500 of the price. If they are on the 22% tax rate, it will cost them only £330 a year in tax.

Further reductions are possible if they pay for all their own business fuel and get reimbursed for mileage.
From April 2008 the 15% rate will fall to only 10%, costing the employee only £220 a year.

This is a really fantastic opportunity to reward employees with cars. However, be careful you don’t give the impression that your employees are not actually contributing to carbon emissions by driving excessively.

About the author
Lesley Stalker is head of tax at the Robert James Partnership. She and her team won a Tax Team of the Year award at the 2006 Lexis Nexis Tax Awards and were finalists for Best General Tax Practice in 2007. For more information, visit www.rjp.co.uk .