Ernst & Young Budget reaction: The new world of sustainability and cleantech
Josephine Bush, Corporate Tax Partner at Ernst & Young, comments on the announcements made today in the Budget:
Budget delivers a mixed bag for sustainability
“The Budget today has delivered mixed messages in relation to the UK government’s support for renewable and sustainability initiatives. In terms of using the tax system to initiate behavioural change the new patent box regime will encourage innovation in UK cleantech businesses that are genuinely innovative and invest in new clean technologies resulting in intellectual property. All profits attributable to qualifying intellectual property can be taxed at 10% corporation tax rate from 1 April 2013.
“In addition, a new above the line R&D tax credit is also being introduced from April 2013. Not only will this benefit early stage loss making cleantech businesses to claim a payable credit, but large corporates for instance that are investing in the implementation of their sustainable strategies resulting in R&D claims may be able to specifically allocate the credit back to their sustainable budgets. This is good news if you are looking to maximise the return on your investment or improve cash flow.
“There continues to be support for 100% tax relief for capital spend that qualifies for enhanced capital allowances as the technologies qualifying are extended to include Heat Pump Driven Air curtains. Additionally there remains support for the surrendering of losses resulting from these enhanced deductions in return for first year tax credits.
“As well as supporting investment the government continues to tax activities that damage the environment – landfill taxes increase by £8 per tonne to £72 and air passenger duty in line with RPI. In addition, there has been a refinement of the legislation around the climate change levy (CCL) and carbon price support (CPS) rate. UK generators, including combined heat and power (CHP) and auto-generators, of fossil fuel based electricity, and those supplying such generators are affected by these measures. In short, it is proposed to reduce or eliminate the tax burden on CHP plants that are engaged in “good quality” non-electricity outputs or carbon capture and storage. The exemption from CCL for electricity produced in CHP stations that is supplied by an electricity utility indirectly to an energy consumer has been withdrawn. Levy exemptions certificates will no longer be issued to utilities for electricity generated in CHP stations from 1 April 2013.
“Interestingly, the government has also said that it is intending on simplifying the Carbon Reduction Commitment (CRC) regime to reduce the administrative burden on businesses. In short, they propose an environmental tax as an alternate. In effect, after the abandonment of the recycling of payments, this measure had already be effected in practice but we should wait to see how this pans out after consultation.
Greater clarity still required
“So far so good. In the same breathe as the above, the government has indicated that EIS and VCT relief will not be available for some businesses that claim the Feed in Tariff. This requires further clarification but is likely to affect investment in micro-generation. Serial entrepreneurs , HNWI and PE/VCT funds will not like this move and appears at odds with the government’s head line support for renewable energy investment. In addition, businesses that claim Feed in Tariffs or Renewable Heat Incentives will not be entitled to enhanced capital allowances and expenditure on solar panels will designated as special rate expenditure for capital allowance purposes (ie 8% from April 2012).
“As much as the government is prepared to provide some investment support into renewable energy and tax carbon production, it is equally providing additional support for the producers of fossil fuels via the oil and gas field allowances the much desired clarity over tax relief for decommissioning costs. It has also stated that gas fired electricity generation will continue to play a major role in UK energy supplies over the next decade and beyond.
“The much needed clarity required around tax policy that supports the investment landscape in sustainable, renewable and cleantech investments is therefore still required but for those looking to invest it is possible to navigate round this in a meaningful way.”