Funding Solar - Capital Purchase

November 17, 2020

The easiest way of funding a solar PV array is using cash in the bank.

By funding the system via cash, not only do you own the asset from day one, you will not need to worry about interest costs eating into your return on investment.

This particular method of funding also offers some secondary and tertiary benefits that some of the other funding methods do not such as being able to take advantage of the Annual Investment Allowance (AIA)

The AIA allows a business to deduct the full value of an item that qualifies for annual investment allowance from your profits before tax. This is currently capped at £1million per tax year.
 
For example, if a business were to invest in a solar PV array costing £250,000, they could potentially reduce their taxable liability by £50,000 if they were a 20% tax payer and had sufficient profits to offset –

Scenario A -

No investment in solar

  • Pre-tax profit – £500,000
  • Tax on profit – £100,000

Scenario B -

Investment in solar

  • Solar investment – £250,000
  • Pre-tax profit – £250,000
  • Tax on profit – £50,000

 

  • Saving – £50,000

Another benefit of using cash to invest in solar PV is that the unencumbered asset could be used to raise capital for the business in the future. Like any fixed asset, solar panels and the associated equipment can be used as security for borrowing if the business needs it.

The final main benefit of investing in solar via cash is that it could enhance the value of your property. At a time when electricity costs are spiralling out of control, and industry is under pressure to do their bit for the environment, demonstrating that you have a clean ‘power-station’ on your roof will likely make your property more appealing to any business looking to buy a new home.

For more information get in contact with BeBa today.