Renewable Energy

Renewable energy solutions and sustainable technologies are developing at a fast pace and are crucial for achieving sustainable development and transition to a lower carbon future. Businesses in this sector, whether experienced or newcomers, can benefit from the value of careful planning both at the outset and throughout the life of any new energy project to ensure benefits are maximised.

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Introduction

At Smith & Williamson, we are passionate about supporting businesses that are creating more and better ways to power our world. The renewable energy and sustainable technology sector has been growing over the last three decades and we expect this level of growth to accelerate, as climate change moves higher up government agendas.

The UK’s target is to achieve net-zero emissions by 2050. In its 2019 manifesto, the Government announced a “green industrial revolution” committing to create two million new, green jobs, boost renewable energy and cut emissions. This was confirmed in the 2020 UK Energy White Paper setting out plans for decarbonisation of the energy system, coupled with a potential doubling of energy demand requiring a four-fold increase in green generation. In 2021, the UK is also hosting the UN Climate Change Conference (COP26) bringing together heads of state, climate experts and campaigners to agree coordinated action to tackle climate change.

Sub-sectors of renewable energy and sustainable technology that we have experience in (for technology development, generation and supply) include:

  • Offshore and onshore wind
  • Solar power
  • Energy from waste
  • Electric vehicles
  • Battery storage
  • Hydrogen fuel cells
  • Carbon capture

How we help

Renewable energy and renewable technology are developing at a fast pace which means it is important that your advisers understand the industry and are proactive and responsive to developments.

We have worked with a range of businesses in the industry across all stages of a project lifecycle, including:

  • Entrepreneurial and owner managed businesses
  • Investment funds investing into sustainable energy companies
  • Large corporates – in the renewable energy or adjacent sectors

Our teams work closely together with our clients to ensure a joined up approach and the best result for our clients.

Some of the issues we have recently advised Renewable Energy businesses on include:

  • Advising on R&D tax credits and capital allowances on wind turbine construction in advance of the project to allow these benefits to be built into the financial model

Our approach

Dedicated

Your firm will benefit from a co-ordinated, cross-discipline service from our specialist energy team. We have more than 140 professional services partners, providing all-round advisory, accounting and tax services tailored to your needs.

Experienced

With deep industry expertise and sector insight, we help steer your management team through your organisation’s unique challenges, to enable you to effect change and deliver your strategy successfully.

Connected

Our active involvement with our network across the energy sector ensures we are closely connected to the issues and concerns of energy businesses and can innovate to address them.

Forward thinking

We seek not just to solve but anticipate the challenges the energy sector faces. Our insight condenses these issues and shines a light on solutions for clients, meeting the challenges together. With a big focus on technology, we provide cutting edge solutions for your business.

Frequently asked tax questions

What are the key tax considerations for a renewable energy project?

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

What environmental taxes exist in the UK?

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 licenced 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

Consideration is also being given to a carbon border pricing policy to replace the EU system that the UK is currently within.

What is the process for making an R&D tax relief claim?

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.

What costs can my renewable energy business recover VAT on?

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.

 

As a member of the Regen & Electricity Storage Network (ESN) we work alongside other professionals to help address some of the issues arising from the fast-paced developments and advise on how we build a more sustainable future.

DISCLAIMER
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

Tax legislation is that prevailing at the time, is subject to change without notice and depends on individual circumstances. Clients should always seek appropriate tax advice before making decisions. HMRC Tax Year 2021/22.

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