In our previous blog post, we gave an insight into why solar panels for business make financial sense, looking at the average annual spend for a small to medium sized business on their electricity bills, against the kilowatt-hour (kWh) of energy used and the average cost of a typical commercial PV solar system. This week we caught up with Mike Waterfield of Torr Waterfield Accountants to shed some light on the tax savings available to businesses investing in solar energy.
In addition to the considerable energy cost savings of installing solar panels, tax relief is also available for the initial purchase of the solar panels. "The purchase of solar panels for your business would constitute capital expenditure.' Explains Mike. "You would not see this cost in your 'profit & loss account' but instead it would be shown as an asset on your balance sheet enabling you to obtain tax relief through capital allowances."
Full tax relief on the purchase solar panels for limited companies, partnerships and sole traders. This means that you can claim a deduction for the full cost of the asset in the year of purchase by using your entitlement to “Annual Investment Allowances” (AIAs). The entitlement to AIA’s for the year to 31 December 2015 for all businesses (limited companies, partnerships and sole traders) is currently £500,000 - this will be decreasing to £200,000 from 01 January 2016. Mike adds, “There’s no need to panic if you have already used the majority of your AIA’s against other capital additions. Any balance remaining after AIA’s will be allocated to the “special rate” pool and will be entitled to 8% writing down allowances per year. Although this will be a slower method of obtaining tax relief, you will eventually receive full relief on the cost.”
As of 1st April 2015, it has been possible for limited companies to get corporation relief at 20%. Partnerships and sole traders get relief through self assessment at their highest rate of income tax (either 20%/40%/45%). National Insurance is paid at the lower Class 4 rate (this will be a saving of 9% if your taxable profits are below £42,385 or 2% if they exceed this level). Therefore, the tax relief you can receive on the purchase of the solar panels will decrease the “effective cost” of them considerably.
There are various factors to consider to ensure that you obtain the most effective tax relief. The solar panels must be completely installed during the year and “in use” by the business in order to claim relief. You cannot claim any capital allowances until this has happened. Mike added, “Due to the AIA limits decreasing from 1st January (from £500,000 to £200,000 per annum), if your business incurs a high level of capital expenditure it may be wise to review what you have currently spent to ensure that you are not going to exceed the AIA limit in any given accounting period to ensure you obtain the quickest relief for tax.”
This is obviously a complex area but one we have a lot of experience in. We have been designing, installing and maintaining PV solar systems for over 20 years and we have the best team around us to ensure that your installation gives you the best return on your investment. If you are thinking of investing in solar panels for your business, please don’t hesitate to get in touch and arrange a solar site survey.