GUIDE · FOR UK SOLAR INSTALLERS · 10 MIN READ

Capital Allowances on Solar Panels: What to Tell Commercial Customers

Finance directors ask about tax relief at the proposal stage, and a wrong answer costs you the job or your credibility. This guide sets out what HMRC's own guidance says, so you can put the right allowance in front of the customer and send the detail to their accountant.

General information from GOV.UK, HMRC manuals and legislation, checked 13 October 2026. It isn't tax advice: the customer's accountant decides what they claim.

Solar panels are special rate plant

Capital allowances are how a business gets tax relief on equipment it buys and keeps. Plant and machinery sits in one of two pools: the main pool or the special rate pool. HMRC's Capital Allowances Manual says "all capital expenditure on the provision of solar panels is specifically designated as special rate", from 1 April 2012 for companies and 6 April 2012 for income tax. GOV.UK lists solar panels in the special rate pool, at a writing down allowance of 6% a year.

That classification is the single most useful fact to know, because it decides which of the headline reliefs your customer can and can't use.

The allowances that apply, and the ones that don't

The AIA. The Annual Investment Allowance is £1m a year, made permanent from April 2023. It covers the full cost in the year of purchase, and HMRC confirms a business can set it against special rate spending first. For most small and mid-sized businesses, a commercial solar system fits inside the AIA. The £1m is shared across all the plant the business buys that year, so a customer who has just bought vehicles or machinery may have less headroom than you'd think.

The 50% first-year allowance. Companies paying corporation tax can claim 50% of the cost of new, unused special rate plant in year one. The rest goes into the special rate pool. GOV.UK says it is permanent, alongside full expensing. It doesn't apply to plant bought for leasing.

Not full expensing, not the 40% FYA. Full expensing is 100% for main rate plant only. The 40% first-year allowance announced at Budget 2025 applies to main rate spending from 1 January 2026 and is open to unincorporated businesses too. HMRC's manual states that special rate expenditure does not qualify for it. The same Budget cut the main pool writing down allowance from 18% to 14% from April 2026, but left the special rate pool at 6%.

What each type of customer can claim

Ownership matters most. Under section 11 of the Capital Allowances Act, allowances go to the person who incurs the cost and owns the plant as a result. On a power purchase agreement the funder normally owns the panels, so the business on site gets cheaper power but no allowances. That is a fair point to raise when a customer is comparing buying outright with a PPA.

Batteries

Solar panels are named in the special rate rules. Batteries aren't, and we found no HMRC guidance on how a battery installed with solar is treated. Spending that isn't special rate normally gets main rate allowances, which would open up full expensing for companies and the 40% first-year allowance for everyone else. HMRC could equally see it as part of the electrical system. Don't promise either. Say it's a question for the customer's accountant.

Business rates

Customers often worry that panels will push up their rates bill. In England, the Valuation for Rating (Plant and Machinery) (England) (Amendment) Regulations 2022 took plant used to generate, store, transform or transmit power from mainly or exclusively renewable sources, photovoltaics included, out of the rating valuation. The change came into force on 1 April 2022 and covers days before 1 April 2035. Wales and Scotland have their own rates systems, so check the position there before you say anything.

VAT

The zero rate on energy-saving materials covers installations in residential accommodation and, from 1 February 2024, buildings used solely for a relevant charitable purpose. It runs to 31 March 2027 and then becomes 5%. An ordinary commercial roof is outside it, so quote commercial jobs with VAT at the standard rate. Most VAT-registered customers can recover it in the usual way.

If the customer sells the system later

Allowances can be clawed back on a sale. After a 50% first-year allowance on the full cost, HMRC's manual says half the disposal value is a balancing charge and the rest comes off the special rate pool. It matters if a customer is thinking of selling the building with the panels on it.

How to use this in a proposal

• Ask early who will own the system and whether the business is a limited company, a sole trader, a partnership or a landlord. It decides the answer.
• Put one plain line in the financial section: "Solar panels are special rate plant. Most businesses can claim the Annual Investment Allowance (100% in year one, up to £1m a year); companies can claim a 50% first-year allowance above that. Please confirm with your accountant."
• Show the payback before and after allowances only if the customer's accountant gives you their tax position. Otherwise show the payback without tax and mention the allowance separately.
• Add the business rates point for English sites. It answers an objection before it comes up.
• Send the customer this page or the GOV.UK links in the sources. Their accountant will trust HMRC's wording more than yours.

Tax relief helps a good deal over the line. It rarely saves a bad one. The site, the roof and the energy use still decide whether the job goes ahead: our commercial solar survey checklist covers what to confirm on site, and how to sell commercial solar covers the proposal and objections. Systems up to 50kW also need MCS certification for the customer to get the Smart Export Guarantee, and most commercial roofs need a G99 application.

Common mistakes

Knowing the tax position wins jobs, but only once you're in front of the customer. Solar Surveys UK books qualified commercial solar survey appointments with business owners for UK installers. You pay per booked appointment, with no retainer. See what commercial solar leads cost and the other ways to find commercial solar work.

Solar panels and capital allowances: FAQ