If you're looking into solar panels for your business, you're probably already aware that solar panels count as 'plant and machinery', which your business can claim capital allowances on. This reduces the effective cost of the installation through tax relief. Below we cover the capital allowances available for solar panels in 2026, and how they now work together rather than as a single either/or choice.
What Solar Panels Capital Allowances Are Available To Me?
As a business investing in solar panels, you can claim capital allowances against the cost, which reduces your taxable profit and therefore your corporation tax bill. Solar PV is classed by HMRC as special-rate plant and machinery, and for special-rate spend there are three reliefs that apply in a set order, not as alternatives you pick between:
- Annual Investment Allowance (AIA) - 100% relief on qualifying capital spend, up to £1m a year across your whole business, applied first.
- 50% Special Rate First Year Allowance - 50% relief on any special-rate spend left over once your AIA for the year is used up.
- 6% Writing Down Allowance (WDA) - whatever remains after AIA and the 50% FYA goes into your special rate pool and is written down at 6% a year, indefinitely.
What Is The 50% Special Rate First Year Allowance?
The 50% special rate (SR) first year allowance was introduced from 1 April 2021, originally alongside the super-deduction, and both were due to end on 31 March 2023. The super-deduction did end on that date and has not been available since. The 50% SR first year allowance was extended, and at the Autumn Statement 2023 was made permanent for special-rate spend such as solar panels, so there is no end date to plan around for solar purchases today.
How The 50% Special Rate First Year Allowance Works
To claim the 50% SR first year allowance, your solar panels must be new and unused - second-hand installations do not qualify. It applies to the portion of your special-rate spend that is left over once your AIA for the year has been used, and lets you deduct 50% of that remaining cost from your profits before tax.
Worked Example
Below is an example, based on a company paying corporation tax at the 25% main rate, that has already used its AIA elsewhere that year and is claiming the 50% SR allowance on its solar spend.
| Amount | |
|---|---|
| Profit before tax | £600,000 |
| Corporation tax at 25% | £600,000 × 0.25 = £150,000 |
| Solar investment cost | £50,000 |
| 50% SR first year allowance deduction | £50,000 × 0.5 = £25,000 |
| Profit after deduction | £600,000 − £25,000 = £575,000 |
| New corporation tax due | £575,000 × 0.25 = £143,750 |
| Tax saving from the 50% SR allowance | £150,000 − £143,750 = £6,250 |
Illustrative example only. Your actual saving depends on your profits, other capital spend in the year and how much of your AIA is still available.
With a tax saving of £6,250, the effective cost of this £50,000 solar installation falls to £43,750.
What Is The Annual Investment Allowance?
For most businesses, the Annual Investment Allowance is the more valuable relief. The AIA lets you deduct 100% of the cost of a qualifying solar installation from your profits in the year of purchase, up to a cap of £1m a year across all your qualifying capital spend, and it is permanent, with no end date. Because it gives 100% relief rather than 50%, it should generally be claimed ahead of the 50% SR first year allowance wherever your AIA cap allows it.
How The Annual Investment Allowance Works
So long as your solar panels are new, bought specifically for use in your business, and your total qualifying spend for the year is within the £1m cap, the installation should qualify for AIA in full. You can only claim AIA in the accounting period in which you buy the panels - the purchase date is either the day you sign the contract, if payment is due within four months, or the date payment is due, if it is due more than four months later.
Worked Example
| Amount | |
|---|---|
| Profit before tax | £600,000 |
| Corporation tax at 25% | £600,000 × 0.25 = £150,000 |
| Solar investment cost | £50,000 |
| AIA deduction (100% of cost) | £50,000 |
| Profit after deduction | £600,000 − £50,000 = £550,000 |
| New corporation tax due | £550,000 × 0.25 = £137,500 |
| Tax saving from AIA | £150,000 − £137,500 = £12,500 |
Illustrative example only, at the 25% main rate of corporation tax.
With a tax saving of £12,500, the effective cost of this £50,000 solar installation falls to £37,500 - double the saving of the 50% SR allowance on the same spend, which is why AIA should be used first wherever it is available.
Which Solar Panels Are Covered By Capital Allowances?
Both main types of solar panel system qualify: solar thermal systems, which heat water for your business, and solar photovoltaic (PV) systems, which generate electricity. Whichever system you choose, you should be able to claim capital allowances against the cost, in the order set out above.
Solar Panels Capital Allowances Summary
Corporation tax bands for 2026
Small profits rate, up to £50,000
Main rate, over £250,000
Annual Investment Allowance cap
As a business owner investing in solar panels, capital allowances are one of the most effective ways to reduce your net cost. AIA reduces the effective cost of your solar installation by your marginal rate of corporation tax, 25% for businesses on the main rate, or 19% for smaller companies with profits up to £50,000, with marginal relief tapering between £50,000 and £250,000 of profit. Any spend above your AIA cap can then fall back to the 50% first year allowance, and whatever is left after that continues to attract relief through the 6% writing-down allowance every year.
Get your free solar assessment and we will model your system cost against these allowances, and set it alongside buying outright, hire purchase and a fully funded PPA, so you can see the real net cost of going solar for your business.
