With subsidies being cut, can tax breaks help the renewables sector?

01 December 2015

Jackie Hall

With representatives from 190 nations gathering in Paris this week to thrash out a new global agreement on climate change what incentives do we in the UK have to help towards the ultimate goal of restricting global warming to a rise of no more than two per cent over pre-industrial revolution temperatures?

On a positive note, the government intends to increase funding for the Renewable Heat Incentive to £1.5bn in 2021 and estimates that by the end of the Parliament to have incentivised enough renewable heat to warm the equivalent of over 500,000 homes. There is a promise of a Shale Wealth Fund, to deliver investment of up to £1bn in local communities hosting shale gas developments. But the timescale for this is 25 years and the gas itself is a hydrocarbon fuel which in the long term will become part of the problem rather than the solution.

On the other hand, valuable tax reliefs have either been lost or are threatened in the short term. Amongst these, the Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) and Seed Enterprise Investment Scheme (SEIS) which can no longer be used where the activities of the company involve the provision of reserve energy generating capacity and the generation of renewable energy benefiting from other government support by community energy organisations. Add to this the announcement that these activities will no longer be eligible for Social Investment Tax relief (SITR) and all remaining energy generation activities will be excluded from the schemes from 6 April 2016. Fundraising, particularly for community renewable energy projects, has become an uphill struggle to say the least.

Some valuable tax reliefs do however remain which are of particular relevance to companies involved in developing new ways of producing and storing renewable energy. Such companies should be encouraged to take advantage of Research and Development (R&D) tax reliefs available for qualifying companies. Qualifying companies can get relief of 230 per cent, instead of the usual 100 per cent deduction for revenue expenditure, of their qualifying R & D expenditure under the SME regime. The relief available to larger companies is lower at 130 per cent.

Separate incentives are also available under the Patent Box regime where a corporation tax rate of just 10 per cent is available on qualifying profits. So perhaps the incentive is still there to meet the two per cent target after all.