In 2021 the UK government introduced a new tax incentive called "super deduction" that allows businesses to claim 130% of the cost of certain capital investments as a tax reduction. This means that for every £1 spent on qualifying investments, a business can reduce its taxable profits by £1.30.
Excitingly, an area where this incentive could be particularly beneficial is in the purchase of solar panels and other energy efficiency improvements. With the UK government committed to reaching net zero carbon emissions by 2050, investing in renewable energy sources like solar power is more important for businesses than ever before. The super deduction allowance incentivises businesses to make these investments by making solar power more financially attractive.
What are the qualifying investments?
The list of qualifying investments for the super deduction includes a wide range of energy efficiency improvements, such as:
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Solar panels and other forms of renewable energy generation equipment
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Energy efficient lighting, such as LED lights
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HVAC (heating, ventilation, and air conditioning) systems
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Building insulation, including walls, roofs, and floors
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Electric vehicle charging points
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Smart metering and monitoring equipment
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Energy management systems
For example, if a business purchases £100,000 worth of solar panels, it could reduce its taxable profits by £130,000. This could result in a significant reduction in the business's overall tax bill, making the investment in solar panels more affordable. Deducting £130,000 from your taxable profits will save your business up to19% (Current rate of corporation tax) of that. So 19% of £130,000 or £24,700, which is how much your business could save using the super-deduction allowance.
In addition to the financial benefits and savings, investing in energy efficiency improvements can also help a business reduce its carbon footprint and improve its sustainability credentials. With the super deduction allowance, there has never been a better time for businesses to invest in renewable energy and make a positive impact on the environment.
It's worth noting that the super deduction allowance is temporary and
set to end in March 2023
, so businesses looking to take advantage of the incentive should act now. If you would like more information, then please speak to one of our experts at LivGreen who will be able to offer additional advice.
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