Unlike most domestic installations, the income received from the Feed-in Tariffs is NOT tax free for businesses. The earnings should be accounted for just as any other income into the business. However, there are other tax benefits in relation to how the capital value is treated. Businesses can obtain tax relief on the cost of Renewable Energy System (such as Solar PV systems or Wind Turbines) by claiming the Annual Investment Allowance (AIA). This allows up to £100,000 of expenditure on qualifying plant and equipment to be offset in full against the business’s taxable profit. The £100,000 AIA limit is set to reduce to £25,000 from April 2012.
If the AIA available is not sufficient to fully allow the offset of expenditure on Solar PV, any excess is allowed against taxable profits at the integral fixtures and fittings rate of 10% per annum. The 10% is calculated each year on the balance of the expenditure not previously offset against profit. A business can choose which capital expenditure to allocate against the AIA and it is beneficial to allocate Solar PV ahead of other capital expenditure such as plant and machinery which would qualify for the higher 20% allowance.
Running alongside the AIA is an additional relief, Enhanced Capital Allowances (ECA). These are intended to encourage investment in energy saving plant and machinery and provide the same 100% offset against taxable profit as AIA but are not capped as to the amount that can be claimed. Solar PV is not currently eligible for ECA but Solar Thermal systems, heat pumps and
biomass boilers are (http://www.eca.gov.uk/etl/find).
The information above is provided for general information only and does not constitute any form of advice. We recommend that you seek professional advice regarding your own circumstances.