The Government is offering 50% tax breaks on the capital cost of solar panels for businesses
Tax Breaks for Solar Panels
Tax breaks for solar panels
Back in March 2021, The then Chancellor of the Exchequer, Rishi Sunak, announced two new tax relief measures: The 130% Super-Deduction and the 50% First Year Allowance (FYA).
The measures are intended to kick-start the UK Economy and help British businesses build back better in the wake of the COVID-19 pandemic. It is the biggest two-year tax cut in British history.
To claim their tax break, Businesses must invest in qualifying plant and machinery by 31 March 2023. Solar Panels are qualifying assets under the 50% First Year Allowance.
This means that by investing in solar, you will only pay corporation tax on your operating profits minus 50% of the value of your solar investment.
If you are considering solar for your business, Joju Solar is on hand to offer advice on your investment and to guide you through the process.
Save money on your energy bills, do your bit for the planet and fuel the UK’s economic recovery – all whilst keeping more of your hard-earned profit.
Claim tax benefitsfor installing solar panels
Solar electricity is the cheapest power for your building
Government assistance to help the environment
De-risk your business from volatile energy prices
How much is the 50% First Year Allowance for solar panels worth?
The 50% First Year Allowance means that you only pay corporation tax on your profits minus 50% of the value of the solar roof. Here’s a simple example.
- Your Solar PV investment is £240,000.00
- You get a 50% capital allowance on this = £120,000.00
- You apply the corporate tax rate (19%) to the capital allowance = £22,800.00
- Your tax saving by investing in solar is £22,800.00!
As a rough rule of thumb, the tax saving is roughly equivalent to 1 year of benefits of your solar array.
How does the 50% tax break for solar panels work?
To demonstrate this in more detail:
- Let’s say your operating profit (chosen at random) = £1,600,000.00
- Corporation tax (19%) on this amount (£1,600,000.00 x 0.19) means you pay = £304,000.00 in taxes
Investing in solar would provide you with a capital allowance to reduce your tax bill:
- Your solar investment is: £240,000.00
- You get a 50% capital allowance on this (£240,000.00 x 0.5) = £120,000.00
- You deduct your capital allowance (£120,000.00) from your operating profit (£1,600,000.00) so you only pay tax on operating profits of (£1,600,000.00 – £120,000.00) = £1,480,000.00
- You apply the corporate tax rate (19%) to your adjusted operating profits (£1,480,000.00). This means you only pay (£1,480,000.00 x 0.19) = £281,200.00 in taxes
- Your tax saving with the capital allowance is (£304,000.00 – £281,200.00) = £22,800.00!
Green Technologies for Businesses
What are Capital Allowances on Solar Panels
Capital allowances on solar panels are tax deductions that businesses can claim on the cost of installing solar panels in commercial properties. The UK government offers tax relief in the form of capital allowances to encourage businesses to invest in renewable energy and reduce their carbon footprint.
Under the current rules, businesses can claim a 100% first-year capital allowance on the cost of purchasing and installing solar panels, meaning that the entire cost of the investment can be deducted from taxable profits in the first year. This can provide a significant financial incentive for businesses to invest in renewable energy and can help to reduce the payback period for the investment.
In order to be eligible for capital allowances on solar panels, the installation must meet certain criteria, including the panels being fixed to the property and not portable or temporary, and the system being designed to generate electricity for use in the business premises rather than for export to the grid. It is also important to ensure that the installation complies with all relevant regulations and guidelines, including those set out by the Microgeneration Certification Scheme.
Overall, capital allowances on solar panels can provide a valuable tax relief for businesses investing in renewable energy and can help to reduce the cost of transitioning to a more sustainable and energy-efficient business model.