The Chancellor Announces 'Super-Deduction'

March 8, 2021

On Wednesday 3rd March 2021 Rishi Sunak announced the ’Super-Deduction

The initiative, designed to stimulate investment and encourage growth, has been labelled ‘the biggest business tax cut in modern British history’.
 
For the next two years, when companies invest in new plant or machinery, they can reduce their taxable profits by 130% of the cost – or 50% if the item is classed as ‘special rate expenditure’.

How does this impact your business if you are considering investing in solar power?

Solar power systems has generally been treated as special rate expenditure on the basis that they are integral features of buildings or structures. In addition they have an economic life of over 25 years – https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca22335
 
On this basis, a business can reduce their taxable profits by up to 50% of the cost of the investment.
 
For example –

Scenario A

Investment in Solar

  • Pre-tax profit – £2,000,000
  • Investment in solar – £700,000
  • Write off (50%) – £350,000
  • Taxable profit – £1,650,000
  • Tax (19%) – £313,500
  • Tax saving (year 1) – £66,500

Scenario B

No Investment in Solar

  • Pre-tax profit – £2,000,000
  • Tax (19%) – £380,000
The initiative will run from from 1 April 2021 until 31 March 2023.
 
To discuss taking advantage of the super deduction by developing a solar power system on your roof/land, get in touch with BeBa Energy today.

BeBa Energy UK Ltd do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.