If your business buys a commercial solar system, it can usually claim capital allowances on the cost — reducing your taxable profit. Depending on how the equipment is classified and how you fund it, that may include the Annual Investment Allowance (AIA), full expensing, or the 50% first-year allowance. Always confirm the treatment with your accountant.
What are capital allowances?
Capital allowances let a business deduct the cost of qualifying assets — such as plant and machinery — from its taxable profits. Solar PV and battery systems are generally treated as plant and machinery, so the money you spend on them can reduce your tax bill rather than sitting on the balance sheet with no relief.
Which allowances can apply to solar?
A few routes may be available. The Annual Investment Allowance (AIA) gives 100% relief on qualifying spend up to £1 million a year. For companies, full expensing and the 50% first-year allowance can also apply to new and unused plant and machinery. Solar and battery equipment often falls into the "special rate" category, which affects which of these applies, so the exact relief depends on your circumstances.
How funding affects your claim
To claim capital allowances you generally need to own the asset. Buying outright (CapEx) or funding through hire purchase both let you claim, because you own the system (with HP, at the end of the agreement). Under a PPA the provider owns the system, so you would not claim allowances yourself — instead you benefit from a lower energy rate with no capital outlay.
This guide is general information, not financial or tax advice. Your circumstances determine what applies — please confirm with your accountant or advisor. Get a tailored proposal →
Frequently asked questions
Can I claim capital allowances on solar under a PPA?
No — under a PPA the provider owns the system, so they hold the asset, not you. You benefit through a lower energy rate and zero upfront cost. To claim allowances yourself, you would buy outright or use hire purchase. We can compare both on our funding options page.
Does battery storage qualify too?
Battery storage is generally treated as plant and machinery alongside solar, so similar allowances can apply when you own it. As with all tax matters, confirm the specifics with your accountant.
Related guides
- How solar improves your commercial EPC (and helps with MEES)
- How much can your business save with commercial solar?
- Commercial battery storage: costs, savings and payback
See our funding options, commercial solar and solar by industry pages.