What is green accounting?
Environmental accounting - also called green accounting - is an important way for businesses to show their commitment to balancing business needs with the environment. It involves actively engaging in accounting practices that mean the company’s financial strategy can be met whilst mitigating environmental costs at the same time.
We’re not just talking about using less paper or buying a water butt here - although of course, those things are part of it. The major purpose of green accounting is to help businesses understand and manage the relationship between environmental goals and the basic economics of sustaining the business.
Business owners should start off by reviewing their general ledger
It sounds basic, but with all the day-to-day stuff that small businesses especially need to do, analysing their business costs regularly often falls by the wayside. And the only way a business can ‘green up’ its working practices is by fully understanding their current and future costs.
Most of the information needed to do this should be in the business' general ledger. A thorough analysis of where money is being spent - for example on utility bills, waste disposal and materials - is the best way of seeing where cost savings can be made. And in these financially straightened times, frankly it’s best practice to do this regularly anyway.
However, environmental costs are often included in a general pool of overheads. They’re therefore not considered when calculating the cost of producing a product, making it hard to work out the environmental cost of the products a business makes.
For example, say a product costs £2.50 to make per unit. But how much of that £2.50 is not just a production cost but an environmental cost? What proportion is waste disposal for example, and how can this amount be reduced? What proportion is spent on research into using recyclable materials? This is green accounting in a nutshell.
Accountants can also play a crucial role in calculating the true value of environmental costs for their clients, simply because you deal with their figures!
The role of accountants in supporting clients with green accounting
Senior employees across any business first need to understand the principles behind green accounting and how it works. They should then be able to work with accountants to understand in detail where their largest business costs lie and how production costs are broken down.
Furthermore, these managers can give their accountant guidance and information about the business so that changes can be proposed.
Team managers especially will also have the best idea about where any savings can be made on internal costs. For example, by going through recent supplier invoices and indeed the general ledger, it will soon be apparent how much a skip full of waste costs to dispose of. But team managers will know further details, like what goes in the skip and how long it takes to fill. These costs are important in environmental management accounts and must be included.
What other practical steps can businesses use to implement green accounting?
Whether it’s your client’s business or your own accountancy firm, there are plenty of ways to engage with green accounting. For example:
Anyone involved in any aspect of accounting should understand why working in a sustainable way is important to both the business and the wider environment. Incentives for “working green” could be offered, as well as training and support.
Energy management should also be fun and engaging, so think about a team away day for example.
Cut energy consumption
We know energy bills are going through the roof, so what better time to get back to basics and reduce the amount your business uses. Turn down the heating in winter, AC in summer and use energy-saving bulbs. Check the energy efficiency rating of any appliances and swap them for A-rated ones where possible. Make reusing and recycling a priority.
Use less paper
With cloud-based technology increasingly becoming the norm, paper should be something that’s less and less required in a modern office. Whilst it might not be practical to go paperless altogether, there are many ways to cut paper consumption. For example, printing could be made less convenient or limited to certain roles. Bank statements should also be online.
Go remote (or at least hybrid)
The pandemic means many of us have been working successfully from home, or a hybrid of home and office. Just because pandemic restrictions are behind us, doesn’t mean staff automatically have to be back in the office every day.
Latest government transport statistics show that at one point during the height of the first lockdown in March 2020, car use was down to just 22% of normal volume. The roads were quieter and pollution was down. With this in mind there’s no reason why businesses shouldn’t continue to work flexibly so staff car use is reduced.
Article provided for AccountingWeb by Tax Cloud
Green accounting is catching on and sustainable innovation is booming. Helping your clients adopt a more sustainable way of working is a crucial way of supporting them. Another is in partnering with third parties to expand the range of services your practice provides. R&D Tax Credits is a prime example.
R&D Tax Credits mean up to 33% of company innovation costs can be claimed back from HMRC. This includes developing innovative new green systems and processes.
However, employing a team of R&D tax relief experts in-house is too expensive for many small accountancy practices, and of course may not be practical. But by using a self-service portal like Tax Cloud, you can submit a maximised claim for R&D tax relief on your clients’ behalf.
Any innovative UK company regardless of size, location or industry will not want to miss out on this vital funding stream.
“Tax Cloud works well with my clients, it’s a timely and cost-efficient tool for quickly submitting R&D tax credit claims. I've found the team to be very knowledgeable and supportive with all my client’s claims.” - Martyn Hodgson, Chartered Accountant, End 2 End Accountancy Ltd.
Created by the R&D tax experts at Myriad Associates, partnering with Tax Cloud is the perfect way to diversify your services without the expensive overheads. Even the smallest R&D tax claims can be worth tens of thousands of pounds. Can your clients - and your practice - afford to miss out?
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Tax Cloud is an R&D Tax Credits claim portal.