Business Owners Should Act Now to Capture Capital Allowance Tax Relief
Business owners seeking to cut energy overheads need to act fast to take full advantage of tax breaks available to reduce the cost of installing green technology. Tax relief which is currently available on investment in plant and machinery such as wind turbines, solar panels and biomass boilers is set to fall on January 1 2016.
Wind turbines and solar panels qualify as plant and machinery for capital allowances purposes meaning the annual investment allowance would be available which reduces the taxable profit by the amount of expenditure incurred. It is available for qualifying expenditure on plant and machinery but is capped at £500,000. From 1 January 2016, the cap will fall to £200,000 with the annual maximum being an apportioned amount based on year end accounts.
:Businesses can save a lot of money simply by investing before the cap drops to £200,000 in January. Owners hoping to make a reasonable return from what can be a very expensive asset to install also need to be aware of the tax payable. Any income generated by a business from selling unused power to utility suppliers, known as feed-in-tariffs, is taxable as income. Given the tax reliefs available on expenditure, and the taxation of feed-in-tariffs as income, consideration regarding the best ownership structure for wind turbines should not be overlooked.
With some installers of wind turbines or solar panels guaranteeing a useful life of over 25 years, Henderson Loggie advises that care should be taken to ensure all expenditure is covered by the annual investment allowance. Where it is exceeded, and the useful life is more than 25 years, the excess will be included in a long life asset pool where the writing down allowance (WDA) is 8%. Expenditure for assets with a useful life of less than 25 years benefits from 18% WDA.
Wind turbines generate energy and are not energy saving, therefore, they do not qualify for enhanced capital allowances. However, certain energy saving technology, such as biomass boilers, may qualify for enhanced capital allowances of 100%. A list of qualifying energy saving technology can be found at: https://www.gov.uk/guidance/energy-technology-list.