Purchasing a solar system has never been more affordable, thanks to steadily declining upfront costs that have seen the price of solar panel equipment drop by as much as 82% over the last decade.
Accompanying these lower costs are ever more significant incentives and tax breaks afforded by the UK government to entice more over to the green side.
The combination of these short-term savings from solar power tax breaks and the long-term benefits of using solar energy means there has never been a better time to go solar.
What are the Solar Power Tax Breaks?
The world of solar tax breaks and incentives can get quite complex, but stay with us; it is all favourable for UK consumers.
The first thing to note is that there is a big difference between solar thermal panels, which produce hot water, and photovoltaic panels, which produce electricity. Thermal panels are typically suitable for smaller residential locations, but photovoltaic panels (PV) can scale up in size and work for just about everything. The latter’s the focus of solar power tax breaks.
In March 2021, as part of the UK government’s post-Covid stimulation package, the Chancellor of the Exchequer announced the largest ever solar power incentive package: the 130% Super-Deduction and the 50% First Year Allowance (FYA). It was part of the most extensive two-year business tax cuts in recent British history and the greatest ever push to drag the country away from its fossil fuel dependency.
The tax break that came into effect on 1st April 2021 means businesses can deduct 130% of the cost of solar equipment and installation from their taxable profits. In layperson’s terms, this means that for every £1 a company invests in solar energy, they can reduce their tax bill by up to 25p.
The second part of this package is the 50% First Year Allowance. It’s here that things get a little more complicated. Companies that invest in solar roofs or other setups will only pay corporation tax on their profits minus half of the value of the equipment installed, deducted through capital allowance.
For example, if a business invests £300,000 in installing a solar power system, it will be entitled to a 50% capital tax allowance of £150,000. This tax benefit will then be applied to overall taxable profit, meaning a tidy tax saving at the end of the year.
Are You Eligible for Solar Power Tax Breaks?
These solar power tax breaks are available to all businesses, big or small, regardless of employee size or physical location size. If you have a business and are legally allowed to place solar equipment within your location, you can take advantage of these excellent incentives.
The only hold-up might be for unstable companies, as the governmental tax breaks wouldn’t suit businesses already facing severe financial problems. The government will check credit scores as part of the application.
It’s also important to remember that adding solar equipment may require planning permission, especially if the building is listed as having historical importance or is in a conservation area. It would be ironic for local authorities to turn down planning permission because of potential environmental concerns. Still, the same planning rules must apply, whether it involves building an extension or a small solar farm.
Businesses concerned about installing solar panels could opt for solar generators like the EcoFlow DELTA Pro, which uses a portable solar panel system with a stand that doesn’t require solar panel roof installation.
Other Solar Power Incentives
Everything we’ve mentioned so far has focused on business tax breaks, but that’s certainly not the end of opportunities for UK consumers. Numerous incentives are available to homeowners looking to install solar power systems.
ECO4 (Energy Company Obligation)
On 1st April 2022, the UK switched from ECO3 to ECO4, which will run until 2026. The Energy Company Obligation has seen the UK government pledge £4 Billion across the next four years to raise the energy ratings of UK homes and reduce carbon emissions. It means that far more people will qualify for solar panel grants than in the past.
ECO4 allows individual local councils to use funds at their discretion, primarily to help low-income or vulnerable households to help reduce their energy bills. The approval process involves calculating several qualifying benefits, such as child benefits, housing allowance, income support, and universal allowance.
Considering we’re only a matter of months into this new scheme, it’s going to take some time before we see much in the way of concrete outcomes, but things are slowly moving forward.
Smart Export Guarantee (SEG)
The Smart Export Guarantee (SEG) program began on 1st January 2020, designed to provide funding and support for solar panel installation for homes. It allows consumers generating small-scale electricity to effectively export whatever energy they don’t use back into the national grid and receive payment.
SEG isn’t a government program, but the government has put pressure on energy providers so that all licensed suppliers must now offer an export tariff to their customers. All homes with solar panels and the relevant systems of up to 5 MW capacity are eligible under the scheme.
It’s difficult to see this as anything but a win-win situation for everybody involved. Houses use the clean energy they need and then sell off the rest to be used by the wider population. But before you get carried away and see this as a money-making venture, tariffs paid to consumers vary wildly depending on your provider.
For example, Octopus pays 7.5p for every kWh of renewable electricity. Meanwhile, E pays just 1p for the same amount of energy.
All this might sound a bit abstract, so let’s use a real-world example. EcoFlow currently offers Power Kits ranging from 2kWh to 15kWh (with prices spread from just over £4,000 to just under £16,000). These kits provide everything you need to turn your home into a solar-powered house of the future.
An average three-bedroom UK home would need at least a 3.5 kWp solar panel system, which costs just over £6,000. Depending on your provider, you’d probably make £100 to £200 per year through your leftover energy sales. You’d also be saving in the region of £1,800 per year on electricity bills, including the next impending price hike.
It doesn’t take a genius to see those energy savings, and the small amount you get through sales is more than enough to make this a financial winner for those who can afford the upfront costs.
Another significant benefit around at the moment is the reduction of VAT on solar equipment and installation to zero for the next five years.
Before April 2022, VAT was set at 5% for energy-efficient measures, but new changes mean homeowners and businesses can receive a huge helping hand.
Estimates put the average UK family saving between £500 and £1,000 on the installation process, yet another excellent incentive to get that solar system now.
There has never been a better time to invest in solar energy. Environmentally speaking, the Earth is straining badly in the face of impending climate catastrophe. Yet, for a long time, the cost of green energy measures remained so outrageous that it remained well out of reach of everyday families and businesses across the UK.
That is no longer the case. Thanks to a broad selection of tax breaks, payback schemes, VAT reductions, and grants aimed at helping those really in need, the country is taking a huge step away from fossil fuel dependency and a massive step toward green and efficient energy.