Investing in sustainable farming practices – Planning, paying and the tax perspective
By Robert Blair, Partner and ARA specialist
Sustainable farming practices have been on everyone’s lips within the sector, as the Government announces new measures to support investment in green, energy-efficient processes.
In less positive, but equally significant, news the Welsh Government has announced that its Sustainable Farming Scheme will be delayed until 2026.
We know that this has left many operators within the industry wondering how they can move their own working processes towards sustainability objectives.
Investing in sustainable processes will look different for all farms and businesses, but may include:
- New energy-efficient machinery
- Renewable energy installations such as solar panels
- Predictive or analytics technology, such as AI
- Sustainable chemicals such as fertiliser or soil treatments
While this can be costly, we’re here to help.
Let’s start with looking at planning your investments.
Am I ready to invest?
Preparing to invest in sustainable practices will depend on several factors, including:
- Cash reserves – You’ll likely need substantial cash reserves to make a large investment while still being able to cover unexpected expenses.
- Running costs – Your ongoing costs and the chances of cost fluctuation should be accounted for when budgeting for investment.
- Type of investment – A new piece of machinery is likely to cost more than going paperless or engaging a more sustainable supplier.
- External support – Are you in receipt of any Government grants or external investment which should be allocated directly to this project?
Through forecasting and operational streamlining, we can help you to determine when you are ready to invest – and help you to plan your investment schedule around ongoing costs.
Tax reliefs on sustainable investments
The Government seeks to encourage investment in sustainable farming practices, particularly those which also enhance productivity.
Making these investments can be costly. Bringing new technologies into your business can eat into your cash reserves, as can implementing new processes – despite potentially substantial long-term savings.
To incentivise these changes and make it less of a financial burden to invest, there are several tax reliefs which you may be able to claim on sustainable capital expenditure.
Enhanced Capital Allowances (ECAs) provide a form of 100 per cent first-year allowance for investments in energy-saving equipment, which can include:
- Hydrogen and biogas refuelling equipment
- Electric and no-emission cars
- Zero-emission goods vehicles
- Equipment used for EV charging points
You cannot use this in conjunction with your Annual Investment Allowance (AIA), but it does not count towards your AIA total.
While it does specifically target sustainable purchases, AIA allows you to deduct up to £1 million of qualifying expenditure from taxable profits each financial year.
If you are investing in specialist equipment for energy conservation, you may also qualify for tax relief under schemes like the Environmentally Beneficial Plant and Machinery (EBPM).
Please contact us for further advice and support with investment in sustainable farming practices.