Solar panels and capital allowances: write off up to £1m in year one

Solar capital allowances in 30 seconds

Capital allowances for solar panels: which ones apply in 2026

HMRC's manual is explicit: "all capital expenditure on the provision of solar panels is specifically designated as special rate" (CA22335). So the AIA is the big lever. A company spending £150,000 on a rooftop system can usually deduct the whole lot from that year's profits, as long as the AIA hasn't been used up on other kit.

HMRC designated solar panels as special rate from 1 April 2012 for Corporation Tax and 6 April 2012 for Income Tax. Before that they were generally treated as special rate anyway, as integral features or long-life assets. The designation exists, in HMRC's words, "to ensure clarity of treatment". So there's no argument to be had about putting solar panels in the main pool.

That makes the order of play simple for most buyers: use the AIA first. It gives 100% relief in year one, it works for sole traders and partnerships as well as companies, and £1 million a year covers almost every rooftop system an SME will buy. Only if you've already used the AIA on other kit does the 50% first-year allowance come into it, and only if you're a company.

Full expensing and solar panels: why it doesn't apply

Search for "full expensing solar panels" and you'll find plenty of pages saying you can deduct 100% of solar under full expensing. You can't. GOV.UK's guidance is clear that full expensing is for main-rate plant and machinery, and that for special-rate plant a company gets the 50% first-year allowance instead, with the balance going into the special-rate pool. Solar panels are special rate.

In practice this rarely costs you anything, because the AIA does the same job as full expensing for any solar spend up to £1 million. It matters for big companies that have already used their AIA on other plant in the same year.

The solar panels super-deduction ended in 2023

Lots of older articles still say you can claim a 130% "super-deduction" on solar panels. That was never quite right, and it's now out of date twice over:

• It ended. The super-deduction and its sister, the 50% special-rate first-year allowance, covered spending from 1 April 2021 up to and including 31 March 2023.
• It didn't cover solar. GOV.UK states: "You can only claim super-deduction for main rate plant and machinery." Solar panels were special rate, so in that window companies got the 50% special-rate allowance, not 130%.
• What replaced it: from 1 April 2023, full expensing for main-rate plant and a permanent 50% first-year allowance for special-rate plant. For solar, that means the AIA first and the 50% allowance after it.

If an installer's sales deck still promises a super-deduction, treat the rest of their numbers with care too.

Worked examples: what a £60,000 solar system saves in tax

These are illustrative calculations, not tax advice. We've used a £60,000 system, roughly what a 47-48kW roof costs at the DESNZ 2025/26 median of £1,262/kW. If you're VAT registered, use the cost excluding VAT, because you normally reclaim the VAT; GOV.UK says to include VAT in the pool only if you're not VAT registered.

Corporation Tax rates (GOV.UK, checked October 2026): 25% main rate on profits over £250,000, 19% small profits rate on profits of £50,000 or less, and Marginal Relief in between, which gives a rate between the two. Income Tax for sole traders and partners in England, Wales and Northern Ireland: 20% basic, 40% higher and 45% additional rate. Scotland's bands are different.

Sole traders and partnerships: most now use the cash basis by default and deduct equipment as an expense instead. Examples D and E assume traditional accounting.

Two points the examples make clear. First, the allowances don't change how much relief you get in total so much as when you get it: the AIA pulls it all into year one, which is what makes the cash flow on solar so strong. Second, the relief is only as valuable as your profits. A loss-making business gains nothing in year one from a bigger deduction, which is one reason a solar PPA or lease can suit some sites better.

Example A in plain terms: £60,000 spent, £15,000 less Corporation Tax, so the net cost after tax relief is £45,000 before any bill savings. Bill savings and export income come on top and depend on your own usage; see business solar panel costs for how to model them.

Companies, sole traders and partnerships: who can claim what

Timing matters. You can only claim the AIA in the accounting period you bought the item. GOV.UK says the purchase date is when you sign the contract if payment is due within 4 months, or when payment is due if it's later. If your accounting period is shorter than 12 months, the £1 million limit is cut pro rata. And you can't claim the AIA in the final period of a business that's closing.

Leasing, PPAs and hire purchase: who gets the allowances?

Capital allowances go to whoever owns the kit and bore the cost. GOV.UK is blunt: you can't claim on "things you lease (unless you have a hire purchase contract or long funding lease) - you must own them".

This is the biggest single reason to buy rather than sign a PPA if you have the cash or credit and the profits to absorb the deduction. See no-upfront-cost commercial solar for the PPA side of that decision.

Batteries, integral features and other grey areas

• Batteries: unconfirmed. HMRC's manual names solar panels specifically as special rate. It doesn't name battery storage in the same way. Whether a battery counts as main-rate or special-rate plant affects whether a company could use full expensing or only the 50% allowance on it, and that depends on the facts. The AIA is the safe route either way. Ask your accountant before you rely on a battery claim. See commercial battery storage.
• Integral features. Electrical systems, including lighting, are integral features, and they also sit in the special-rate pool. So rewiring, a new distribution board or LED lighting done alongside the solar usually gets the same treatment.
• Roof repairs. Repairs are a revenue expense, not plant. Alterations to a building to install plant can qualify. If you re-roof before the panels go on, ask your accountant how to split the bill.
• Selling the building or the system. If you dispose of an asset you claimed allowances on, a balancing adjustment applies. When you buy a building, you can usually only claim for fixtures the previous owner claimed for, and the value has to be agreed with the seller.
• Solar carports. The panels are special rate, but the canopy structure may be treated differently. See solar carports.

Other tax and cost breaks that stack with capital allowances

• Business rates: In England, plant and machinery used to generate or store power from on-site renewables (solar included, and batteries where the power stored is mainly or exclusively renewable) is excluded from rateable value until 1 April 2035. Wales (from 1 April 2024) and Scotland (from 1 April 2023) have equivalent exemptions running to 2035. Adding panels to your roof shouldn't raise your rates bill.
• VAT: Ordinary business premises pay 20% VAT on solar, batteries and heat pumps, which VAT-registered businesses can normally reclaim. The 0% rate is only for homes and buildings used solely for a relevant charitable purpose, and it runs to 31 March 2027.
• Export income: The Smart Export Guarantee pays for solar you export, on systems up to 5MW in Great Britain. Suppliers set their own rates; the law only says the rate must be above zero, so shop around.

For grants, loans and every other funding route, see commercial solar panel grants and the business energy grants hub.

What to prepare before you claim

1. An itemised invoice. Panels, inverters, mounting, electrical work, scaffolding and any roof works shown separately, so your accountant can allocate each line.
2. The contract and payment dates. These fix which accounting period the spend falls into.
3. Proof the kit is new and unused if you're a company relying on the 50% first-year allowance.
4. How much AIA you've used this period on other plant, across any companies under common control.
5. Ownership. Confirm you own the system outright, or have a hire purchase agreement, not an operating lease.
6. Your profit forecast. The deduction is only worth what it saves; your accountant may split the claim if profits are low.

Ready to price a system? We'll pass your enquiry to one suitable commercial installer, who'll survey the site and give you an itemised quote. You won't be passed round a list or sold on.