Resource Magazine – Tax strategies

8th December 2008

James Greenhalgh, Cowgill Holloway

For a long time in the waste and recycling industry, Landfill Tax has been the big tax talking point.  This is, of course, a major issue, and one that must be addressed and reviewed on a regular basis as part of businesses’ ongoing tax strategies.  However, there are a number of other tax incentives that are often missed by companies in the industry, which can prove invaluable in gaining cash flow advantages.

For example, the Finance Act 2008 introduced a new tax credit for companies that purchase ‘green’ technology.  If the company makes a loss in the year that it purchases the equipment, then it can surrender the loss attributable to the purchase for a cash repayment from HMRC.  Previously, this had allowed profit-making companies to deduct 100 per cent of the cost from their taxable profits, but this new system opens the scheme up to start-ups and small businesses that invest in designated green technologies.

There are two types of plant and machinery that fall under the scheme: those that are water efficient and those that are energy efficient.  For the waste and recycling industry, these would include boilers, combined heat and power units and compact heat exchangers, as well as slurry and sludge dewatering equipment and membrane filtration systems in the water-saving categories.

However, these are only a small selection of the equipment that qualifies, and it is likely that many businesses will have already purchased this type of technology, whether in refurbishments or in expansion into new areas such as waste to power or biomass. Businesses should look carefully at the scheme for claiming these enhanced tax reliefs (available at www.eca.gov.uk), as they could be turned into a significant cash flow benefit.

Companies involved in niche areas of the waste industry may also be able to claim Research and Development tax relief. Waste to energy and the development of new techniques in site preparation for the remediation sector are just two of the activities that may fall within the definition of R&D for tax purposes, and the rate of innovation in the industry means that there are likely to be many more opportunities in the future.

Qualifying expenditure, which could include staff wages, employers NIC and consumables, would then be enhanced by a maximum of 50 per cent, although for large companies this is restricted to 25 per cent.  The Finance Act 2008 announced that the rate of relief for small and medium sized companies would be raised to 75 per cent and this applies from the 1st August 2008. The large company scheme rate of relief was raised to 30% for expenditure incurred after 1st April 2008.

There is a time limit of two years from a company’s year-end in which to make a claim for this relief.  If the business is in a loss-making position, then a cash repayment can be requested in exchange for a surrender of the losses to the taxman.

The waste and recycling industry is one of the most environmentally innovative and forward thinking in the economy, and this is something that is recognised and rewarded by the government. Businesses in the sector have a real opportunity to boost cash flow at a time when funding is hard to come by, and they must take advantage of the bonuses and reliefs that are available to them.