Limited Company, Self Assessment

Can I use company funds to instal solar panels?

Posted on by sharon baker
09
Feb

You’re working from home and feel that you’d be more energy efficient if you purchased solar panels for your home. This would also allow you to continue to work from home when power cuts occur.

Can you use company funds to pay for installing solar panels?

TL:DR

No time to read? Our quick advice would be to purchase the solar panels personally rather than through the business. If you were to purchase the solar panels through your business, there would be tax implications to your company and yourself, as the panels will be on your home and there will be personal use.

In some cases there would be a very small gain, but the admin and work involved would far outweigh any gain.

Purchasing solar panels through your company

Taxable benefits in kind

If the company were to purchase the solar panels for your home, it would create a taxable Benefit in Kind, which you would be taxed on personally as income tax (which could be 20% or 40% depending on your other income) . The company would pay Class 1A National Insurance, which is currently 13.8%.

Tax and National Insurance is calculated on the value of the benefit, which would be the cost of the solar panels in this case. This would be an annual charge for you and the company, as long as you had use of the solar panels.

Tax examples on £10,000 solar panels:

  • Benefit in kind personal tax:
    • If you’re a basic rate tax payer, you’d pay £2,000 each year
    • If you’re a higher rate tax payer, you’d pay £4,000 each year
    • If you’re an additional higher rate tax payer, you’d pay £4,500 each year
  • Your company would pay £1,380 in Class 1A National Insurance each year

Total cost each year to you and your company: between £3,280 and £5,880 each year, based on 20% basic rate and 40% higher rate tax.

Tax relief for the company on the cost of the solar panels

We would be able to claim capital allowances in the year that the company purchases the solar panels, which reduces your taxable profits, and therefore reduces your company tax.

However solar panels come under the special rate first year allowance, which means we can only claim 50% of the cost as a deduction against your company profits.

So if the solar panels cost £10,000 we could only deduct £5,000 from your profits before working out your corporation tax.

Tax saving examples:

  • If your corporation tax rate is 19%, this would save £950 in tax
  • If your tax rate is 25% this would save £1,250 in tax.

Paying the company for the electricity used personally

You would have to pay the Company for all the electricity you use personally. To do this you’d need to keep a record of how much electricity is generated from the solar panels and how much is used for business and personal use.

This can get very messy and you would need to keep lots of records of the electricity that’s being generated and how it’s used.

Claiming use of home allowance

You would also be unable to continue claiming the HMRC approved working from home allowance of £6 per week, as electricity costs are included in this allowance and the company would now be generating it’s own electricity.

If you purchase the panels personally, then you can continue claiming use of home.

Alternative option

You could take a dividend from your company to pay for the solar panels.

Dividends are taxed at 8.75% up to the Higher Rate threshold (currently £37,700), then at 33.75% above this threshold.

Examples of taking a £10,000 dividend to pay for the solar panels personally:

  • If you’re a basic rate taxpayer, the dividend tax due would be £875
  • If you’re a higher rate taxpayer, the dividend tax due would be £3,375

Reporting electricity sold back to the grid

If you do sell electricity back to the grid, this should be reported to HMRC either:

  • in the company accounts and your company tax return: if the company purchased the solar panels, or
  • on your self-assessment tax return: if you purchase the panels personally

Conclusion

Everyone’s circumstances are different, so do get advice. In simple terms, it seems best to purchase the solar panels personally rather than through the business.

Although there would be tax savings by buying solar panels through the business, the tax cost of the personal use, and the admin involved would far outweigh any gains.

Get in touch if we can assist with your specific situation.

We also have blogs on working from home including:

 

sharon baker