In a recent study undertaken by the UK Warehousing Association, the warehousing sector possesses approximately a third of all commercial roof space and whilst the take up of solar panel installations in the sector have been slow, this is now starting to increase and gain momentum.
By 2030, non-domestic minimum expected energy standards (MEES) will require all non-domestic private rented properties to have an EPC level of at least level B, with an EPC level C rating required by 2027, to meet the government’s criteria of achieving net zero by 2050. The installation of solar panels can help meet these obligations.
The installation of solar panels is eligible for special rate pool allowances and would be subject to the £1m annual investment allowance (AIA) which allows 100% relief on eligible assets such as plant and machinery and integral features, including solar panels. There is also a 50% first year allowance for integral features such as solar panels under the new ‘full expensing’ rules. These come in from 1 April 2023 and run until 31 March 2026 and the 50% allowance is particularly useful where a company does not have sufficient AIA.
The tax impact is shown as below where the full 50% first year allowance is available:
|Solar panels cost||£60,000|
|Total relief/tax deduction||£30,000|
In the above example, 6% of the remaining amount (i.e., £30,000) can be claimed each year until the asset is fully written down to nil. . It is more tax efficient to use the company’s AIA against special rate pool items in priority first, before allocating the remaining AIA to plant and machinery/main pool assets, (particularly which may not be eligible under the new ‘full expensing’ rules, such as second-hand items, or items purchased for hiring). (However, where companies are in a group, there is only one AIA limit between all group companies).
Timing of expenditure is key, and broadly speaking, if the payment for the expenditure occurs 4 months or more after the unconditional obligation to pay arises, which is most often the invoice date or delivery date, the expenditure is treated as occurring on the date of payment. Depending on the circumstances this may defer the tax relief available into the next accounting period.
It’s also worth checking whether any grants are available to fund the purchase of equipment, for example Locase (https://locase.co.uk/) (Low Cost Carbon South East) runs until June 2023 (last grants panel is currently set for early May) which provides funding up to £10,000 on energy efficient equipment (certain eligibility criteria need to be met). It is also worth checking https://www.grantfinder.co.uk/funding-highlights/funds/energy/ on a regular basis for other grants available.
The tax impact on making use of grants is that the value on which capital allowances are applied is reduced by the value of the grant.
Speak to Menzies LLP early in the process when considering the purchase and installation of solar panels in order to under the tax implications, particularly against any other fit out expenditure.