Tax incentives for renewable energy

April 19, 2021

Are you eligible for renewable energy government incentives?

Can my business get tax incentives for renewable energy in the UK? Energy-saving technologies are eligible for generous new renewable energy tax incentives for a limited time. Find out how they make the case for solar PV, LED lighting, and other green technologies even stronger.

To aid the economic recovery from COVID-19, the government wants businesses to spend. New government incentives for green energy in the UK have now been introduced to encourage investments in plants and machinery, which is good news for anyone interested in energy-saving technologies like LED lighting, solar PV, and EV charge points. Here’s why.

Super-Deduction

The standout announcement from the Chancellor’s 2021 Budget was an unprecedented new Super-Deduction capital allowance scheme. From 1 April 2021 until 31 March 2023, companies investing in new plant and machinery will be able to claim 130% first-year energy tax relief on qualifying ‘main rate’ assets, and a 50% First-Year Allowance (FYA) on ‘special rate’ (long-life) assets.

In addition, the Annual Investment Allowance (AIA), which provides 100% relief on qualifying plants and machinery, has been extended to its highest ever threshold of £1 million until 31 December 2021.

But what does that mean exactly? Let’s break it down.

How tax incentives for renewable energy works

As they are treated as ‘integral building features’ for tax purposes, solar PV and LED lighting are classed as a special rate capital expenditure. Without the benefits above, they would qualify for a 6% Writing Down Allowance (WDA) against your taxable profits. However, they now qualify for the much more generous 50% FYA, as well as the 100% AIA (providing you haven’t exceeded the £1 million thresholds). EV charge points are already eligible for a 100% FYA, which runs until 31 March 2023.

Still a bit confusing? Here are some simple scenarios.

Scenario 1:

Company A has a pre-tax profit of £2 million. They do not invest in any qualifying plant or machinery during the tax year. Their corporation tax bill (at 19%) will be £380,000.

Scenario 2:

Company B has the same pre-tax profit. However, they decide to invest £100,000 in solar PV and LED lighting. They can deduct the full £100,000 from their taxable profits through the AIA. That means their tax bill will be £361,000 – a £19,000 tax saving, on top of drastically reduced energy costs.

Scenario 3:

Company C also invests £100,000 in solar PV and LED lighting. They have already exceeded their AIA for the tax year, but thanks to the new 50% FYA they can still deduct an additional £50,000 from their taxable profits, giving them a £9,500 tax saving.

These green energy incentives make the UK’s capital allowance regime the most generous in the developed world. They can be applied by businesses of any size, providing you pay corporation tax.

Expert View:

“A city the size of Manchester could transform itself into the equivalent of a sizeable power station if enough businesses installed just one 5kW commercial solar panel on their roofs and sites. The Chancellor’s Super-Deductor will help this.” Peter Emery, CEO of Electricity North West a £9,500 tax saving.

But remember – the Super-Deduction scheme only runs until March 2023 and the £1 million AIA threshold is likely to be reduced after December 2021. Don’t miss out on these renewable energy government incentives.