Contractors' Questions: Is buying solar panels tax-deductable?

Contractor’s Question: I'm a freelancer who works from home, but might be in a position to invest in solar panels (to power the home and office) with business funds. Can I write what might amount to a sizeable investment off against tax?

Expert’s Answer: The purchase of solar panels is a capital acquisition. As I don't want to get your hopes up, I will state from the start that the ‘bottom line’ is that in my opinion it wouldn't qualify in the taxman’s eyes.

There is a difference in tax treatment between the employed and self-employed. As you are "freelance", you could be self-employed or perhaps employed working through an umbrella company.

  1. For employees. There is a test – is it "necessary"? And solar panels are not a necessary expense so will not qualify on that basis alone.
  1. For the self-employed (including companies). Their test, as usual, is less severe (than the test for employees, above), in that it must be for the ‘purpose of the trade.’ It is expected that the trade will own the asset, so I assume that will cut out any limited company. And the asset must be “wholly or partly” for business.

Well, it certainly isn't ‘wholly business,’ as the solar panels would benefit the whole of the house (not to mention the environment!). It’s for this reason that HM Revenue & Customs would NOT accept that your panels are primarily business with any private element being incidental.

HMRC’s next question, which you’d struggle to answer with your eco-friendly item, would, ‘how do you split the cost between business and private?’

It’s simpler to answer if you were looking at a car - you would measure the mileage. With a dual purpose phone and an itemised bill, you will get the business calls on the itemised bill - but not the rental as the rental is the rental whether you use it or not, and the rental cost does not increase as a result of business use. Therefore, I am of the opinion that the claim would fail.

The expert was Bob, the retired tax inspector. 








Friday 26th Oct 2012
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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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