Investments in renewable energy typically require significant capital outlay upfront, which can give rise to challenges for the business. There are a variety of incentives that the UK tax system offers and businesses should ensure they utilise those to which they are entitled.

Typically the key tax considerations include:

• Interest deductibility in the group structure
• Availability of capital allowances
• Research & Development (“R&D”) tax incentives for innovative technologies
• Group and consortium relief considerations
• Tax compliance for ongoing operations
• Exit strategies and participation exemptions
• Decommissioning costs and tax accounting
• Minimising irrecoverable VAT and structuring on international intragroup transactions
• Stamp duty considerations on acquisitions of property, land or shares

The definition of ‘environmental taxes’ is somewhat subjective. In the UK, there are currently several taxes imposed to encourage ‘green’ behaviour by particular businesses or specific users:

• Climate Change Levy (CCL): a tax on energy delivered to non-domestic users
• Landfill tax: applies to all waste disposed of at licensed landfill sites, unless the waste is specifically exempt
• Aggregates Levy: a tax on sand, gravel and rock that has either been dug from the ground, dredged from the sea in UK waters or imported

R&D tax relief is claimed through a company tax return, assuming the company pays UK corporation tax. A claim can be made up to two years after the end of the accounting period in which qualifying expenditure was incurred, so for example a company with a year end of 31 December 2021 has until 31 December 2023 to make an R&D claim in the tax return. However, we find that preparing an R&D claim on a real-time basis not only tends to increase the value of the claim (because engineers or developers are more engaged in the process) but also ensures a robust claim is made to HMRC as access to supporting data is more easily available.

The first step is generally to identify the qualifying expenditure that was incurred on relevant renewable energy projects. Our R&D team includes developers and engineers who fully understand the projects undertaken by clients at a technical level and so help prepare a technical narrative to accompany your R&D claim. The amount of supporting explanation required depends on the size and complexity of the claim. Our expertise has allowed us to deliver a very high success rate of R&D claims with HMRC.

Supplies of energy are typically taxable supplies for VAT purposes and so input tax incurred on project costs is often largely recoverable, subject to the normal rules.

The Domestic Reverse Charge may apply to supplies of wholesale gas and electricity, but this will depend on the contractual position with customers. This is a complex area of VAT law and our specialists would be happy to assist further.