Buying 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 up to 82% in the last decade.
Along with these lower costs, the UK government is providing increasingly significant incentives and tax breaks to entice more people to go green.
With these short-term savings from solar power tax breaks and the long-term benefits of using solar energy, there has never been a better time to go solar.
What are the Solar Energy Tax Credits?
The world of solar tax breaks and incentives can be complicated, but don't worry; it's all good for UK consumers.
The first distinction to be made is between solar thermal panels, which generate hot water, and photovoltaic panels, which generate electricity. Thermal panels are typically appropriate for smaller residential locations, but photovoltaic (PV) panels can scale up in size and work for almost any application. The latter is the focus of solar energy tax credits.
The Chancellor of the Exchequer announced the largest ever solar power incentive package in March 2021, as part of the UK government's post-Covid stimulus 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, as well as the biggest ever push to wean the country off its reliance on fossil fuels.
Businesses can deduct 130% of the cost of solar equipment and installation from their taxable profits under the tax break that went into effect on April 1, 2021. In layman's terms, this means that for every £1 invested in solar energy, a company's tax bill can be reduced by up to 25p.
The 50% First Year Allowance is the second component of this package. Things become a little more complicated here. Companies that invest in solar roofs or other systems will only pay corporation tax on their profits less half the value of the installed equipment, deducted through capital allowance.
For example, if a company invests £300,000 in installing a solar power system, it will be eligible for a £150,000 capital tax allowance. This tax benefit will then be applied to total taxable profit, resulting in a sizable tax savings at the end of the year.
Are You Eligible for Solar Tax Credits?
These tax breaks for solar energy are available to all businesses, large and small, regardless of employee size or physical location size. If you own a business and are legally permitted to install solar equipment, you can take advantage of these fantastic incentives.
The only stumbling block could be for insolvent businesses, as government tax breaks would not be beneficial to those already in dire financial straits. As part of the application process, the government will check credit scores.
It's also worth noting that installing solar equipment may necessitate obtaining planning permission, especially if the structure is designated as historically significant or is located in a conservation area. It would be ironic if local governments denied planning permission due to potential environmental concerns. Regardless of whether it is an extension or a small solar farm, the same planning rules must be followed.
Solar generators such as the EcoFlow DELTA Pro, which uses a portable solar panel system with a stand and does not require solar panel roof installation, are an option for businesses concerned about installing solar panels.
Other Solar Power Incentive Programs
Everything we've said so far has focused on business tax breaks, but that's far from the end of the road for UK consumers. There are numerous incentives available to homeowners who want to install solar power systems.
ECO4 (Energy Company Obligation)
The UK transitioned from ECO3 to ECO4, which will last until 2026, on April 1, 2022. The UK government has pledged £4 billion over the next four years to improve the energy efficiency of UK homes and reduce carbon emissions through the Energy Company Obligation. It means that far more people will be eligible for solar panel grants than previously.
Individual local councils can use ECO4 funds at their discretion, primarily to assist low-income or vulnerable households in lowering their energy bills. Several qualifying benefits, such as child benefits, housing allowance, income support, and universal allowance, must be calculated during the approval process.
Given that we're only a few months into this new scheme, it'll be some time before we see any concrete results, but things are slowly moving forward.
Smart Export Guarantee (SEG)
The Smart Export Guarantee (SEG) programme, which began on January 1, 2020, is intended to provide funding and support for home solar panel installation. It enables consumers who generate small-scale electricity to effectively export any excess energy back into the national grid and receive payment.
Although SEG is not a government programme, the government has put pressure on energy providers, requiring all licenced suppliers to offer an export tariff to their customers. The scheme is open to all homes with solar panels and relevant systems with a capacity of up to 5 MW.
It's difficult to see this as anything other than a win-win situation for all parties involved. Houses use the clean energy they require and then sell the remainder to the general public. But, before you get carried away and think of this as a money-making opportunity, keep in mind that tariffs paid to consumers vary greatly depending on your provider.
Octopus, for example, pays 7.5p per kWh of renewable electricity. E, on the other hand, pays only 1p for the same amount of energy.
All of this may sound a little abstract, so let's look at a real-world example. We are currently offer Power Kits ranging from 2kWh to 15kWh (with prices ranging from slightly more than £4,000 to slightly less than £16,000). These kits include everything you need to transform your home into a futuristic solar-powered home.
A 3.5 kWp solar panel system, which costs slightly more than £6,000, would be required for a typical three-bedroom UK home. Depending on your provider, you could make between £100 and £200 per year from your leftover energy sales. You'd also save around £1,800 per year on electricity bills, not including the next price increase.
It doesn't take a genius to see the energy savings, and the small amount you make from sales is more than enough to make this a financial winner for those who can afford the initial costs.
VAT reduction
Another significant benefit that is currently available is the zero-percentage-point VAT reduction on solar equipment and installation for the next five years.
Prior to April 2022, VAT on energy-efficient measures was set at 5%, but new changes mean that homeowners and businesses can benefit significantly.
According to estimates, the average UK family will save between £500 and £1,000 on the installation process, providing yet another compelling reason to get that solar system installed right away.
Conclusion
There has never been a better time to make a solar energy investment. Environmentally, the Earth is under severe stress in the face of impending climate disaster. Yet, for a long time, the cost of green energy measures was so exorbitant that it was out of reach for ordinary families and businesses across the UK.
That is no longer true. The country is moving away from fossil fuel dependence and toward green and efficient energy thanks to a wide range of tax breaks, payback schemes, VAT reductions, and grants aimed at assisting those in need.
