Guide · Tax treatment of commercial solar
Solar capital allowances, without the myth.
Solar PV is special rate plant and machinery. That single fact changes which reliefs you can claim, and it is the fact most solar quotes get wrong. Here is what actually applies, what it is worth in cash, and what to hand your accountant.
Start here
Solar is excluded from full expensing. Politely, that is not a matter of opinion.
You will see "claim 100% in year one under full expensing" on a lot of solar proposals. It is wrong, and it is the sort of wrong that shows up eighteen months later in your corporation tax computation rather than on the day you sign.
Since April 2012, all capital expenditure on the provision of solar panels is designated special rate expenditure — it sits in the special rate pool rather than the main pool. Full expensing, and the new 40% first-year allowance introduced from January 2026, are both main pool reliefs. Special-rate assets are specifically carved out of them. Integral features, long-life assets and solar panels are all in the same excluded group.
This is not bad news. It just means the relief comes through a different door, and for a typical commercial rooftop system, that door still gets you a 100% deduction in year one. It simply has a different name on it, and it has a limit worth planning around.
In one line
Special rate plant → no full expensing → use the AIA, or the 50% first-year allowance.
If a quote you are holding says "full expensing" against a solar system, ask the supplier to show you where. It is a fair question and it tells you a lot about the rest of the numbers in the document.
The two real routes
What you can actually claim.
Two reliefs do the heavy lifting on commercial solar. Which one applies depends on your legal form, your year end, and what else you have already bought this year.
Route A
Annual Investment Allowance
up to £1,000,000 a year
The AIA gives a 100% deduction in the year of spend on qualifying plant and machinery — and, unlike full expensing, it does cover special-rate expenditure. That is what makes it the route most commercial solar systems actually use. It is available to companies, sole traders and partnerships alike, and the £1m limit is an annual allowance shared across all your qualifying plant.
Watch for: if you have already spent your AIA on machinery, vans, fit-out or refrigeration this year, solar has to queue behind it. Timing the install either side of a year end is a real planning lever — one your accountant should call, not us.
Route B
50% special rate first-year allowance
balance written down at 6% a year
Where AIA is not available — usually because it has already been used — a company can claim a 50% first-year allowance on special-rate expenditure. Half the cost is deducted in year one; the remaining half goes into the special rate pool and is written down at 6% a year on a reducing balance. You get the same total relief eventually, just far more slowly.
Watch for: first-year allowances are for companies within the charge to corporation tax. Unincorporated businesses fall back on the AIA and the pool. The new 40% first-year allowance introduced from January 2026 is a MAIN pool relief — solar does not qualify for that one either.
One boundary worth knowing before you budget: the panels, inverters, mounting system and associated electrical works are plant. A new roof underneath them is not. That is structure, and any relief on it runs through the Structures and Buildings Allowance at 3% a year instead. If your roof needs work before it can carry an array, the two costs are treated very differently, and we will split them out in the proposal so your accountant can see which is which.
Worked illustration
What it is worth in cash, on a £150,000 system.
A capital allowance reduces your taxable profit, not your tax bill directly, so the cash value is the deduction multiplied by your effective rate. The illustration below assumes a company with enough taxable profit to absorb the claim, paying the 25% main rate. Between £50,000 and £250,000 of profit, marginal relief makes the effective rate on each extra pound 26.5%, which makes the same deduction worth slightly more. Your accountant will use your real figures; these are ours, for shape.
Route A, Annual Investment Allowance
| Qualifying spend on plant | £150,000 |
|---|---|
| Deduction claimed in year one (AIA, 100%) | £150,000 |
| Corporation tax saved at 25% | £37,500 |
| Effective net cost of the system | £112,500 |
Route B, 50% first-year allowance
| Qualifying spend on plant | £150,000 |
|---|---|
| Deduction claimed in year one (FYA, 50%) | £75,000 |
| Corporation tax saved in year one at 25% | £18,750 |
| Balance to the special rate pool (6% WDA) | £75,000 |
| Further deduction in year two (6% of £75,000) | £4,500 |
The difference is timing, not total. Route A hands you £37,500 of tax relief in the first year. Route B hands you £18,750, then trickles the rest out of a 6% reducing-balance pool over more than a decade, at that rate it takes around twelve years to have claimed even half of the deferred amount. On a system with a three-to-five year payback, that timing difference is material, which is why we always suggest the tax conversation happens before the install date is fixed rather than after. See how the relief lands inside the wider numbers on our commercial solar payback guide.
Real Green Tech Hub projects. The £150,000 figure above is an illustration, not a quotation for any of them.
The rest of the picture
VAT, business rates and funded systems.
Capital allowances are only one of the three tax questions a finance director asks about a solar project. Here are the other two, plus what changes when you do not own the asset.
VAT on commercial premises
The 0% VAT rate on energy-saving materials applies to residential accommodation and buildings used for a relevant charitable purpose — not to commercial premises. A solar install on your factory, warehouse or office is standard-rated at 20%. If you are VAT-registered and making taxable supplies, that VAT is normally recovered as input tax, so it is a cash-flow item rather than a cost. Partly exempt organisations — some charities, care and education providers, financial services — need to check their recovery position first.
Business rates in England
Eligible on-site renewable generation and storage in England is exempt from business rates until 31 March 2035. There is nothing to apply for: the Valuation Office Agency simply leaves the qualifying plant out of the rateable value. Rooftop solar for self-consumption, and battery storage alongside it, sit squarely inside the exemption. Scotland and Wales run their own schemes — almost all of our work is in England, so that is the rule that applies to our customers.
Funded systems and PPAs
Capital allowances follow ownership. Under a power purchase agreement you are buying electricity, not an asset — there is no capital expenditure on your books, so the allowances sit with the funder, which is part of how the funded rate is priced. Buy the system outright, or acquire it under an arrangement where you end up owning it, and the allowances are yours. The paperwork decides it, so give your accountant the actual agreement rather than a summary of it.
Two related points while you are budgeting. Battery storage installed with the array is also plant, and sits alongside the solar in the same special-rate treatment. See battery storage for business. Electric vehicle charge points are the outlier: they have their own 100% first-year allowance, currently running to 31 March 2027 for corporation tax, so if EV charging is on your roadmap the sequencing is worth a conversation. If you are weighing a funded route instead, start with funded and PPA options or our financing page.
Where we stop
We are installers, not tax advisers.
Everything on this page is general information about how the rules work, correct to the best of our knowledge as at July 2026. It is not tax advice and it cannot account for your profits, your year end, your group structure or what else you have already claimed. Confirm the treatment with your accountant before you commit: and when you do, we will give them the figures they need: the qualifying plant cost split out from any structural or roofing works, the commissioning date, the system specification and the generation forecast, in the format they ask for.
Green Tech Hub Ltd is an Introducer Appointed Representative (Financial Services Register No. 987950) of Phoenix Financial Consultants Limited ("Phoenix"). Phoenix is a credit broker, not a lender. Phoenix is authorised and regulated by the Financial Conduct Authority (FRN: 539195), and offers finance from its panel of lenders. All finance subject to status and credit checks.
Questions
Straight answers.
The ones accountants ask us most, answered without the sales spin.
Can I claim full expensing on commercial solar panels?
No, and any supplier telling you otherwise has it wrong. Since April 2012 all capital expenditure on solar panels is designated special rate expenditure, and full expensing applies only to main pool plant and machinery. The reliefs that are genuinely available to you are the Annual Investment Allowance, which does cover special-rate spend at 100% up to £1m a year, and the 50% special-rate first-year allowance for companies.
Is the AIA or the 50% first-year allowance better for a solar system?
For a typical commercial system the AIA is usually better, because it deducts 100% of the qualifying cost in year one rather than 50%. The 50% first-year allowance matters when your £1m annual AIA has already been used on other plant, or when the solar spend itself exceeds the £1m limit. Both routes give the same total relief in the end; the AIA simply gives it to you far sooner.
What happens to the half that is not claimed in year one?
It goes into the special rate pool and attracts a writing down allowance of 6% a year on a reducing balance. That is slow: at 6% reducing balance it takes roughly twelve years to have claimed half of the original amount, and mathematically the pool never quite reaches zero. It is one reason we suggest talking to your accountant about timing before you commit to an install date.
Do capital allowances still apply if the system is funded or on a PPA?
Not to you, in the case of a PPA. With a power purchase agreement you are buying the electricity rather than the asset, so there is no qualifying capital expenditure on your books and the allowances belong to the funder. Where the arrangement leads to you owning the system, the allowances generally remain available to you. The specific agreement determines the answer, so your accountant needs to see it.
Can I reclaim the VAT on a commercial solar installation?
The domestic 0% rate for energy-saving materials does not extend to commercial premises, so a commercial install is standard-rated at 20%. A VAT-registered business making taxable supplies normally recovers that as input tax in the usual way, which makes it a timing and cash-flow question rather than an extra cost. Partly exempt organisations should check their recovery position before budgeting.
Will installing solar increase my business rates?
Not in England, at least until 31 March 2035. Eligible on-site renewable generation and storage is exempt from business rates, and the exemption is applied automatically by the Valuation Office Agency at valuation rather than by application. The exemption is aimed at on-site generation for self-consumption rather than large standalone generating stations exporting to the grid.
Get the figures your accountant needs.
Our free Business Energy Survey gives you a fully costed proposal with the qualifying plant cost, generation forecast and payback set out clearly, the document your accountant can actually work from.
More on commercial solar, payback and funded systems.