Capital Allowances on Solar Panels for Businesses

Can a business claim capital allowances on solar panels?

Yes, if the business pays for the panels and owns them for use in its trade. HMRC's Capital Allowances Manual says that "all capital expenditure on the provision of solar panels is specifically designated as special rate", from 1 April 2012 for corporation tax and 6 April 2012 for income tax (CA22335). GOV.UK lists solar panels in the special rate pool, with integral features such as electrical and lighting systems (rates and pools).

That matters because the rate and the allowances you can use depend on the pool. The general rule in the Capital Allowances Act is that the person who incurs the expenditure must own the plant as a result of incurring it (section 11). So the business that buys the system is the one that claims.

The allowances, side by side

Sources: GOV.UK AIA, GOV.UK full expensing, CA23174AA, rates and pools and CA23195A.

The Annual Investment Allowance and solar

GOV.UK says "the AIA amount is £1 million" and that you can claim it on most plant and machinery up to that amount (source). For most businesses putting solar on their own building, that covers the whole system in the year it is bought, so the cost comes off taxable profits in one go.

• One AIA between linked companies. GOV.UK says two or more limited companies controlled by the same person only get one AIA between them.
• Partnerships. The AIA is only available where all the members are individuals.
• The limit is shared. The £1 million covers all the business's plant and machinery in the period, not solar alone; a shorter or longer accounting period is pro-rated.
• Hire purchase interest. You cannot claim allowances on the interest payments.

The AIA is worth more against special rate spend than main rate spend, because the alternative for special rate is only 6% a year. You don't have to use it all: GOV.UK says you can use writing down allowances instead, or split the cost.

Companies: the 50% first-year allowance and the special rate pool

HMRC describes two first-year allowances for companies: full expensing, a 100% allowance for main rate plant and machinery, and "a 50% FYA for qualifying expenditure on the provision of special rate plant or machinery". It says plainly that special rate expenditure does not qualify for full expensing (CA23174AA).

The conditions are that the expenditure is incurred on or after 1 April 2023 by a company within the charge to corporation tax, on plant that is unused and not second-hand (CA23174AB), and not on plant bought for leasing to others (CA23174AC). What isn't claimed in year one goes into the special rate pool, which gives 6% a year.

In practice a company usually uses the AIA first, because it gives 100%, and only looks at the 50% allowance on spend above its AIA. The 40% first-year allowance that started on 1 January 2026 does not help: HMRC says special rate expenditure does not qualify for it (CA23195A).

Sole traders and partnerships

A sole trader, or a partnership whose members are all individuals, can claim the AIA on solar panels in the same way as a company. Full expensing and the 50% first-year allowance are not open to them: GOV.UK says only companies can claim those (source). Spend not covered by the AIA goes into the special rate pool at 6% a year. A farm run as a partnership is the common case; check whether any member is a company, because that changes the AIA position.

Leased, financed or PPA panels: who claims?

• Bought outright. The business owns the panels and claims the allowances.
• Power purchase agreement. The funder usually pays for, owns and maintains the panels and sells you the electricity. As the owner of the plant is the one who claims (section 11), the business buying the power would not normally claim. See our guide to solar PPAs.
• Hire purchase and leases. These are treated differently from each other. GOV.UK says you cannot claim on hire purchase interest. Ask your accountant how the agreement you are offered is treated before you sign.

If you are comparing buying outright with a PPA, put the tax relief into the comparison: the saving from owning the system includes the allowances, a PPA's does not. Our payback guide shows what drives the rest of the sum.

EV chargers, batteries and business rates

• EV charging points. GOV.UK says new and unused equipment for electric vehicle charging points bought before April 2027 qualifies for 100% first-year allowances (source). Useful if chargers go in with a solar carport.
• Batteries. HMRC's solar panel guidance doesn't mention batteries. We don't publish a view on them: ask your accountant.
• Business rates in England. Regulations made in 2022 leave "excepted renewables plant and machinery", which includes photovoltaics, out of rating valuations for days before 1 April 2035 (SI 2022/405). Ask your rating adviser how this applies to your property.

What to ask your accountant

• How much AIA is left. What else the business has bought or plans to buy in the same accounting period.
• Which entity buys the system. The company, a partner or a property-owning business: the one that owns it claims.
• When to buy. Allowances follow the accounting period the spend falls in.
• Finance. How the loan, hire purchase or lease you are offered is treated for allowances.
• The whole system. How the inverters, mounting, cabling and any battery or chargers are split across the pools.

The installer's proposal should itemise the system so your accountant can do this. A free survey gets you that proposal for your own site. For grants and other reliefs, see solar panel grants for businesses; for prices, see what commercial solar panels cost.