Environmental sustainability is an increasingly pressing issue, and businesses play a key role in achieving eco-friendly goals. In Scotland, environmental taxes and reliefs are vital tools the Government uses to encourage sustainable business practices, reduce carbon emissions, and minimise waste.
Understanding these taxes and reliefs is essential for businesses – not just for compliance but also for identifying opportunities to reduce costs and improve long-term efficiency. This blog explores the key environmental taxes affecting Scottish businesses, the available reliefs, and how accountants can help navigate these regulations while supporting your sustainability goals.
Key environmental taxes
Environmental taxes encourage businesses to adopt greener practices, reduce waste, and minimise carbon footprints. Here are some of the most relevant taxes for Scottish businesses:
Landfill tax
Introduced to reduce the volume of waste sent to landfills, Scotland’s landfill tax is administered by Revenue Scotland. This tax applies to waste disposed of at licensed landfill sites, with rates dependent on the type of waste being discarded.
For the 2024/25 tax year, the rates are:
- Standard rate: £103.70 per tonne
- Lower rate (for inert waste): £3.30 per tonne
This tax incentivises businesses to adopt sustainable waste management practices such as recycling and reusing materials. While it’s a direct cost for businesses, it also allows them to rethink processes and reduce waste volumes to save money.
Non-compliance can result in significant penalties. Businesses must ensure accurate reporting and timely tax returns to avoid additional costs.
Climate change levy (CCL)
The CCL is a tax on energy delivered to non-domestic consumers. It targets businesses in the industrial, commercial, agricultural, and public sectors. Based on the energy consumed, it is charged on electricity, gas, and other taxable commodities.
For 2024/25, the CCL rates are:
- Electricity: 0.775p per kWh
- Natural gas: 0.775p per kWh
Businesses in energy-intensive industries may benefit from reduced rates if they sign up for Climate Change Agreements (CCAs). CCAs are voluntary agreements committing businesses to improve their energy efficiency and reduce carbon emissions. By achieving these targets, businesses can secure a discount of up to 90% on the electricity component of the levy.
Aggregates levy
This tax applies to the commercial exploitation of rock, sand, and gravel. Its aim is to reduce the environmental impact of quarrying and promote the use of recycled aggregates.
For 2024/25, the aggregate levy is £2.03 per tonne. Businesses in construction and other sectors reliant on raw materials should consider how this tax affects their costs and explore opportunities to use recycled or alternative materials.
Environmental reliefs and incentives
While environmental taxes may increase costs, the Government provides relief and incentives to reward businesses that adopt sustainable practices. These schemes offer opportunities to save on taxes, offset expenses, and invest in eco-friendly solutions.
Enhanced Capital Allowances (ECAs)
The Enhanced Capital Allowances (ECA) scheme enables businesses to claim 100% tax relief on qualifying investments in energy-efficient and water-efficient technologies. This includes LED lighting, efficient heating systems, and water-saving equipment.
By claiming ECAs, businesses can write off the full cost of eligible equipment against taxable profits in the year of purchase, reducing tax bills while cutting energy and water usage.
Research and development (R&D) tax credits
Businesses developing innovative technologies to improve energy efficiency or reduce environmental impact may be eligible for R&D tax credits. These credits support companies working on new products, processes, or services, including those related to sustainability.
For SMEs, R&D tax credits allow an enhanced deduction of 86% of qualifying costs from taxable profits. Large companies can claim the Research and Development Expenditure Credit (RDEC), which offers a taxable credit of 20% of qualifying expenditure.
This relief can provide a valuable financial boost to businesses investing in sustainable solutions, helping them to innovate and stay competitive.
Energy Savings Opportunity Scheme (ESOS)
ESOS is a mandatory energy assessment scheme for large organisations, designed to identify energy-saving opportunities. Although it is not a direct tax relief, complying with ESOS often leads to cost reductions through improved energy efficiency. Businesses can use these savings to reinvest in eco-friendly technologies and reduce their tax liabilities.
Compliance and cost management
Managing environmental taxes and reliefs requires careful planning and a thorough understanding of the rules. Non-compliance can result in fines and reputational damage while missing out on reliefs means losing valuable cost-saving opportunities.
At Thomas Barrie & Co, we specialise in helping businesses stay compliant while optimising tax efficiency. Here’s how we can assist:
- Landfill tax compliance: We can help you implement waste management strategies to minimise landfill use and ensure accurate reporting.
- CCL and CCAs: Our team can help you sign up for a Climate Change Agreement, which will enable you to benefit from reduced CCL rates.
- Reliefs and allowances: We identify eligible investments for ECAs and R&D tax credits, ensuring you take advantage of available incentives.
With expert support, your business can meet its environmental tax obligations and take advantage of reliefs to reduce costs and enhance sustainability efforts.
The bigger picture: Sustainability and business growth
Environmental taxes and reliefs are more than just compliance tools – they represent an opportunity for businesses to lead the way in sustainability. By reducing energy consumption, cutting waste, and investing in eco-friendly technologies, businesses can achieve long-term savings while improving their environmental impact.
Sustainability also has commercial benefits. Consumers and clients are increasingly drawn to businesses committed to environmental responsibility. Adopting greener practices can enhance your reputation, attract new customers, and gain a competitive edge.
Scottish businesses have a unique opportunity to align with national sustainability goals, such as Scotland’s commitment to achieving net-zero emissions by 2045. You can contribute to these goals with the right support while ensuring your business remains efficient and profitable.
Final thoughts
Understanding environmental taxes and reliefs is essential for Scottish businesses aiming to manage costs, comply with regulations, and support sustainability. From landfill tax and the climate change levy to incentives like ECAs and R&D tax credits, these measures provide a framework for reducing environmental impact while benefiting financially.
At Thomas Barrie & Co, we have the expertise to guide you through these processes, ensuring your business meets its obligations and seizes every opportunity to improve efficiency. Contact us today to find out how we can help with the key environmental taxes and reliefs for Scottish businesses.