The tax implications of going green

Accountant’s Clinic

Sustainable business will increasingly be on the agenda in 2023. Accountant Julia Burn believes there are issues surrounding recruiting and retaining staff to consider and shares some ideas for doctors in private practice.

Sustainability is a hot topic for today’s generation and it is an increasingly important challenge for businesses to ensure that, whatever their objectives, they have the protection of the environment as part of the business strategy. 

Many customers like to opt for ethically and sustainably made goods and often avoid businesses that don’t use these.

So what are the top things that medical practices can do to keep on top of this from both a practical point of view and while being conscious of the financial implications?

It is often the case that environmentally friendly products and practices are the more expensive option – so in a struggling economy that also needs to be factored into the decision-making process.

Simple things which can be done are to try to recycle and re-use where possible. Undoubtably, within a medical practice this is incredibly difficult, as there are many products used which need to be disposed of after one use due to health and safety issues, but every little bit that can be done helps the environment.

Energy-saving is another important consideration, not just for the environment but also for budgeting and cash flows.

Targeted support 

The Chancellor announced in the November Budget that the Energy Price Guarantee (EPG), previously expected to last for two years from October 2022, will continue to just April 2024, but set at a higher bill ceiling of £3,000 per year for the average household. 

Targeted support for the most vulnerable will be also provided by additional cost-of-living payments of £900 to households on means-tested benefits, £300 to pensioner households and £150 for individuals on disability benefits. 

Based on current price forecasts, it is expected this will mean an average of £500 support for every household in the country. While the extension, even at a higher rate, is welcome at a time of soaring inflation, it’s unlikely to go far enough to help the most vulnerable.

The pressure on consumers and businesses with the ever-increasing price of energy is immense and everyone is tightening their belts, so being competitive with prices while still offering high-quality service is even more vital for businesses.

If you provide vehicles to your employees to carry out their work, there are a number of tax benefits for businesses introducing electric cars for their workforce. 

Company cars provided to employees are a benefit in kind and therefore there is a tax charge levied, but the charge is significantly less if the car provided is an electric vehicle rather than if it is petrol or diesel. 

Therefore, as well as doing something ‘greener’ by doing something to positively impact the environment there are also significant tax savings for both businesses and employees. 

Full tax allowance

There are also tax savings for electric cars for companies because the capital allowances are much more favourable for electric vehicles. 

For new and unused cars where CO2 emissions are 0g/km or the car is electric, a business can deduct the full cost from profits before corporation tax for limited companies and from income tax for partnerships or sole traders. 

This means that the business is receiving the full tax allowance against the cost of the new electric vehicle when it is purchased rather than petrol/diesel cars, for which some of the higher emission vehicles can only claim capital allowances of 6% per year.

Doctors with VAT-registered businesses are entitled to claim refunds of the VAT cost on charging electric vehicles used for business purposes, but only if the electric vehicle is charged at the business premises. 

Many businesses – particularly smaller ones – would not have the space to park electric cars for several hours while charging, so this policy would appear to deny VAT refunds to countless businesses without such space.

For privately-owned electric cars, charging the vehicle is taxed at the 5% VAT rate as ‘domestic fuel and power’, but only if it is charged up at one’s home. 

Charging your electric vehicle elsewhere will incur 20% VAT due to HM Revenue and Customs’ policies on the definition of ‘premises’. People without driveways or who occupy flats, for example, have to charge their electric car elsewhere and will pay 20% VAT instead.

Making motoring fairer

During the November financial statement, the Chan­cellor announced that, to ‘make motoring fairer’, from April 2025 electric vehicles will no longer be exempt from Vehicle Excise Duty. 

While this will certainly make motoring fairer, because, after all, electric vehicles still contribute to wear and tear of the roads, it’s more likely driven by the fact that, by 2025, over half of new vehicles in the UK roads are expected to be electric. 

Despite the above aspects of not always being great tax-wise, it is still beneficial to use electric cars because they are generally more cost-efficient while also being much better for the environment.

It is imperative that we all take a part in trying to protect the environment for future generations. Business owners now cannot avoid building sustainability into their strategy, forecasts and ways of operating.

This could ultimately impact new business as well as helping in hiring and retaining the right calibre employees who place a lot of importance of this.

Julia Burn (right) is a director at accountants Blick Rothenberg and part of the team that advises medical practitioners