tax breaks for investing in solar power

July 21, 2021

Time is running out – don’t lose your share of the tax breaks for investing in solar power!

Did you know that there are a number of tax incentives for businesses investing in green power?

Option 1 -

Annual Investment Allowance

Businesses can deduct the full value of an item that qualifies for Annual Investment Allowance (AIA) from your profits before tax.

Until the end of December 2021 you can deduct up to £1,000,000 of qualifying purchases per accounting period.

The £1,000,000 limit is a temporary measure brought in to stimulate investment; on 1st January 2022 this may reduce back to the original £200,000 limit.

In Practical Terms How Will This Benefit My Business?

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

Option 2 -

Super-Deduction

This new initiative – announced in March 2021 – is designed to stimulate investment and encourage growth, and 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.

In Practical Terms How Will This Benefit My Business?


Solar power has generally been treated as special rate expenditure on the basis that they are integral features of buildings or structures. In addition they generally 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 –

No investment in solar

  • Pre-tax profit – £2,000,000
  • Tax (19%) – £380,000

Investment in solar

  •  Pre-tax profit – £2,000,000
  •  Investment in solar – £700,000
  •  Write off (50%) – £350,000
  •  Taxable profit – £313,500
  •  Tax saving – £66,500
The initiative will run from from 1 April 2021 until 31 March 2023.
It can take 5 – 12 months to develop, design and deliver a commercial solar PV system so don’t delay, contact BeBa today to access your portion of the tax breaks.
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.