“Unused warehouse roofs could generate ‘15GW a year’ in solar energy.” – UKWA
The manufacturing sector possesses approximately 45M square feet of warehousing space in the UK; a significant percentage of commercial roof space which could be utilised for energy production in the form of solar panel installations. According to the UK Warehousing Association, whilst the take up of solar panel installations has been slow, this is now starting to increase and gain momentum.
“Warehouse owners across the country are struggling to pay for gas-powered electricity from the grid, when they could be generating all the power they need and more from the roof of their buildings.” – Clare Bottle, Chief Executive of UKWA
If you are considering utilising your warehousing roof space to install solar panels, you will know that there are many potential benefits. Taking government tax incentives and available grants into consideration at the start of your journey is a smart move, to ensure you reap the returns in the quickest possible timeframes.
The installation of solar panels visibly demonstrates your businesses commitment to sustainability, but it also makes good financial sense. Some businesses are seeing up to 70% savings on their energy bills, whilst also mitigating risk from volatile energy prices and supply. Whilst many businesses are seeing ROI on solar panel installations within 3-5 years, taking advantage of government tax incentives can significantly offset installation costs to enable even faster returns.
Hitting government obligations
The installation of solar panels is one way for manufacturing businesses to move towards hitting their obligations to the government’s criteria for achieving net zero by 2050, which includes compliance with nondomestic minimum expected energy standards (MEES), which will require all non-domestic private rented properties to have an EPC level of at least level B, with an EPC level C rating required by 2027.
There are government incentives for the installation of solar panels which are eligible for special rate pool allowances subject to the £1m annual investment allowance (AIA). This AIA allows 100% relief on eligible assets such as plant, machinery and integral features, including solar panels. There is also a 50% first year allowance for integral features such as solar panels under the ‘full expensing’ rules. These came in from 1 April 2023 and can be used in conjunction with the AIA.
Example
The tax impact is shown as below where the full 50% first year allowance is available:
| Solar panels cost | £60,000 |
| 50% first year allowance | (£30,000) |
| AIA | (£30,000) |
| Total relief | £60,000 |
In the above example the result is that the expenditure is fully deductible against taxable profits, and the 50% first year allowance preserves some of the AIA limit, leaving it available to allocate to other assets if required.
Considerations
It is generally more tax efficient to use the company’s AIA against special rate pool items in priority first, before allocating the remaining AIA to plant and machinery/main pool assets, (particularly which may not be eligible under the ‘full expensing’ rules, such as second-hand items, or items purchased for hiring).
Timing of expenditure is key, and broadly speaking, if the payment for the expenditure occurs four months or more after the unconditional obligation to pay arises, which is most often the invoice date or delivery date, the expenditure is treated as occurring on the date of payment. Depending on the circumstances this may defer the tax relief available into the next accounting period.
Grants
It’s also worth checking whether any grants are available to fund the purchase of equipment. Grant Finder updates on a regular basis for other grants available.
The tax impact on making use of grants is that the value on which capital allowances are applied is reduced by the value of the grant.
Conclusion
Installing solar panels on your warehouse roof space makes good business sense. By speaking with Menzies to get advice early in your process, you can be assured that all tax options will be considered so that your investment will deliver the best value for your business.
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