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Capital Investment in Solar Energy Finally Makes Financial Sense

The increase in energy prices has prompted more and more businesses to consider whether it makes sense to invest in solar panels. The practicalities are simple enough. All that is required is to determine whether there is sufficient roof space on the commercial premises to start generating solar energy.


Owing to advancements in solar technology over the past decade, not only are solar panels much more efficient than they used to be, the costs have also fallen significantly, leading to an increase in the number of businesses installing them.


Although costs have fallen, they are still a significant barrier for a lot more businesses who might otherwise have considered solar panels as an option. Costs notwithstanding it would previously have taken many years to recoup the initial outlay and see the true benefits of free energy.


This is no longer the case.


Given the recent energy price rises, it is time to consider seriously investing in solar. It now makes much more financial sense. Obviously, cost is not the only factor in deciding to move to renewable energy. By generating their own solar energy, businesses are demonstrating their green credentials.


Does installing solar panels for businesses make financial sense?


By way of an example, let’s take a medium sized business that uses 40,000 KWh of electricity per year.


Prior to the recent energy price rises a typical business would have paid approximately £0.17 per KWh (plus daily standing charge). As a result, it would pay approximately £7,000 per year for electricity.


Under the current increased rates, the same business would be paying approximately £0.45 per KWh (which is still rising), meaning that it would pay in excess of £18,000 per year for electricity.


A business using about 40,000 KWh per year would potentially require a solar panel system costing approximately £60,000.


Prior to the energy price rises, that would have meant a return on investment in 8.6 years (a timeframe that could be off-putting). With the current costs of electricity, an investment of £60,000 would give a return in approximately 3.3 years. After this, in essence electricity usage is free, saving the business £18,000 annually (depending on the electricity costs at the time)


Are there any tax benefits for businesses installing solar panels?


Currently, the cost of installation of Solar Panels qualifies for the Annual Investment Allowance (AIA), meaning that a business can claim 100% of the costs of equipment and installation, up to the amount of £1 million against it’s taxable profits for the year.


Should the business have already reached it’s £1 million limit in the financial year, it could claim a 50% special rate First Year Allowance instead.


(As of the Chancellor’s 2023 Spring Budget the AIA amount has now been permanently set at £1 million)


Deciding to install solar power needs to be carefully thought out and costed. Given the current energy costs and the tax breaks available the benefits of solar are attractive.


One thing to certainly get advice on is whether you require planning permission to install solar panels.


In general, installing solar on the roof of a building doesn’t require planning permission providing it does not increase the height of the top line of your roof. However if the premises fall within an area of conservation, you will most likely require planning permission.


If you are planning on installing solar panels in the grounds of your property as opposed to the building itself, it is reasonably certain that you will require planning permission. It is always advisable to seek specialist advice on whether you require planning permission or not.


Engage with an Accountant


You should always speak to an accountant prior to any capital investment in your businesses. Accounting procedures surrounding Annual Investment Allowance can be complex. You should engage with a reputable firm of accountants who have detailed knowledge of legislation, and the experience in dealing with it. Find out more about the benefits of using a Chartered Accountant.


For further information and guidance on Capital Allowances such as Annual Investment Allowance and Super-deductions contact us here at Friend Partnership.

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The UK's tax system for individuals classed as "not UK domiciled" (often called "non-doms") is undergoing a significant overhaul. This system has traditionally offered tax advantages for foreign income and gains, but those benefits are coming to an end. Non-domiciled individuals are generally those who haven't established strong ties to the UK in terms of residence or family connections. Previously, they enjoyed a tax perk known as the "remittance basis of taxation." This allowed them to avoid paying UK income tax on foreign income and capital gains, as long as the money remained outside the UK. However, these advantages have been gradually restricted in recent years. The new reforms, announced by the Chancellor of the Exchequer – Jeremy Hunt, represent a change to the existing non-dom tax system. The New System - What Does it Mean Non-Doms in the Future? Starting April 6th, 2025, a new system will be in effect. Here's what it entails for non-domiciled individuals who become UK resident after that date: Temporary Tax Exemption: If you haven't been a UK resident in the past 10 years and become one after the reform, you'll benefit from a temporary tax exemption. This means your foreign income and gains will be exempt from UK income tax for the first four years of your UK residency. Standard Taxation After Four Years: After the initial four-year grace period, your foreign income and gains will be taxed on the same basis as other UK residents. To avoid double taxation, relief will be available against UK tax under Double Tax treaties or the Unilateral system for any foreign tax already paid. What about Existing Non-Doms? The government acknowledges the complexities of transition for current non-dom who are UK residents. Transitional rules are being considered to ease the shift. These may include: Reduced Tax Rate for Bringing Foreign Income to UK: Existing non-doms might be offered an opportunity to bring previously untaxed foreign income and gains back to the UK at a reduced tax rate. Rebasing Foreign Assets for Capital Gains: There's also a possibility of "rebasing" the value of non-domiciled individuals' foreign assets for capital gains tax purposes. This could mean using the asset value in 2019 as a baseline, potentially reducing their future capital gains tax liability. Uncertainties and Taking Action The details of the new system and the transitional rules are still under development. The full picture will become clearer when the government publishes further consultations later in the year. Given the complexities involved, it's crucial for individuals who might be affected by these reforms to seek professional tax advice. Understanding the opportunities and potential pitfalls of the new system can help you make informed decisions about your financial future. While the non-dom tax reform simplifies matters to a certain extent, it introduces new considerations for individuals with international finances. Staying informed and seeking professional guidance will be key to navigating these changes effectively.

Friend Partnership is a forward-thinking firm of Chartered Accountants, Business Advisers, Corporate Finance and Tax Specialists, based In The UK

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