Reducing Costs & Carbon

When it comes to energy, most businesses have two clear goals: to find a way to reduce rising costs; and to reduce the associated emissions as the need to realise net zero targets draws closer. Over the next two years, two new tax breaks provide an ideal opportunity to achieve both at the lowest cost to your business.

Introduced in the March 2021 Budget, these allowances provide enhanced first-year tax relief for businesses investing in new plant or equipment for the period 1 April 2021 to 31 March 2023.

  • The 'super-deduction' rate gives 130% relief on investment in assets that would normally qualify for the 18% main rate writing-down allowance
  • The 'special' rate gives first-year relief at 50% for other assets (e.g. long-life plant or integral building features) which normally qualify for the 6% rate writing-down allowance (which can then be claimed in future years)

"Since these incentives were announced, we've had businesses approaching us who want to take advantage of these tax breaks to invest in energy solutions," says Mark Burrows, E.ON1 Account Director. "For example, we're working with a concrete-structure manufacturer who is looking to install solar photovoltaic (PV) alongside an electric vehicle (EV) charging scheme. But there are still plenty of large business customers who are unaware of the tax benefits they could be taking advantage of."

As a comparison, a company spending £2 million on new manufacturing machinery prior to April could have claimed tax relief of £520,000 in the year of expenditure. Whereas now, under the new 'super-deduction' rate, they will qualify for £2.6 million tax relief under the new rules. "If this machinery increases efficient production or processing efficiency, it will also support energy reduction targets," comments Mark.

"While energy efficient equipment already qualified for enhanced capital allowances, which enable businesses to claim 100% first-year tax relief on investments in qualifying technologies and products, the new super-deduction allows businesses to claim 130% tax relief," explains Mark. "Also, unlike the current annual investment allowance, the super-deduction is uncapped."

The super-deduction scheme also covers all types of new plant and machinery – not just those that promote energy efficiency. As a result, the new scheme is expected to increase the level of business investment by 10%, or around £20 billion a year, according to the Office for Budget Responsibility.

“The most popular energy-related investment options for businesses currently include solar PV, EV chargers, heat pumps and batteries,” says Mark. “These type of technologies often work best when used together. For example, one of our main supermarket chains is working towards the provision of in-store heating and cooling from heat pumps and solar PV, with battery storage to provide continuity.”

As well as increasing energy resilience (any grid-related power cuts won't stop play here), this investment will also help to dramatically reduce the company's carbon emissions.

"As increasing numbers of businesses start to embrace working towards net zero, many are keen to invest in more innovative or new technologies such as batteries. But these tax breaks also incentivise investment in energy efficiency and getting the basics right," observes Mark.

"For example, being able to accurately collect your consumption data, monitor how and where you are using energy, and then reduce waste and improve efficiencies throughout your organisation. Otherwise, you won't be able to demonstrate or maximise energy/carbon savings. That's why working out a holistic strategy before investing is far more likely to deliver the best long-term results."


    Energy-related assets that qualify for the super-deduction or special rate tax breaks include:
  • Solar panels, wind turbines and other on-site generation
  • Sub-metering and energy monitoring/management software
  • Heat pumps
  • EV charging points
  • Building management systems/smart controls
  • Energy storage solutions
  • LED lighting
  • New energy efficient heating and cooling systems
  • Combined heat and power (CHP) units
  • Motors and drives
  • Compressed air equipment
  • Electrical infrastructure equipment
  • For more information, click here.

1npower Business Solution, part of the E.ON group

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