Capital allowances on solar panels in 2026: what your business needs to know
Alt-Group brings a focused guide on how businesses can benefit from capital allowances on solar panels. We’ll break down what capital allowances are, how they work, who may be eligible and how our services can help align your budget with your commercial renewable energy project.
What are capital allowances for solar panels?
Capital allowances allow UK businesses to deduct the cost of certain assets from their taxable profits. For solar panels, these allowances enable companies to offset the cost of purchasing and installing a system against their corporation tax bill.
Instead of treating the expense as a standard business cost in a single year, capital allowances recognise solar PV installations as long-term investments in plant and machinery. This means businesses can claim relief either upfront or over several years, depending on the scheme used, potentially reducing the effective project cost by around 20–25% depending on the business’s tax position.
For commercial solar projects, this can significantly reduce the effective cost and improve return on investment, making renewable energy more financially accessible.
How do capital allowances work for businesses?
There are several funding and finance options businesses can take when developing solar panel projects. Capital allowances reduce a business’s taxable profits by letting it deduct the value of qualifying assets. When it comes to solar systems, businesses can often claim under schemes like the Annual Investment Allowance (AIA), which allows 100% of qualifying costs to be deducted in the year of purchase (up to £1 million).
If costs exceed this, Writing Down Allowance (WDA) may apply over time. The result is a lower corporation tax bill, helping to improve cash flow and accelerate payback on the investment.
Why solar panels qualify as plant and machinery
Items that you keep to use in your business are known as ‘plant and machinery’. Solar panels fall in this category because they perform an active role in a business’s operations by generating electricity on-site for commercial purposes.
Classifying solar installations as plant and machinery is crucial, as capital allowances are specifically designed to cover equipment that contributes to business activity. Components like panels, inverters, mounting systems and even grid connection fees typically qualify, provided they are used for business purposes rather than residential use.
The difference between capital allowances and tax credits
Capital allowances and tax credits both reduce tax liability, but they work differently.
- Capital allowances – reduce the amount of profit a business is taxed on, lowering the overall tax bill indirectly.
- Tax credits – directly reduce the tax owed.
In the UK, solar investments primarily benefit from capital allowances rather than specific tax credits, making allowances the main route for financial relief on commercial solar installations.
Eligibility criteria you need to consider
Who can claim capital allowances on solar panels?
Capital allowances on solar panels can be claimed by UK businesses that pay tax and invest in qualifying equipment for commercial use. This includes limited companies subject to corporation tax, as well as sole traders and partnerships paying income tax.
To be eligible, the business must own the solar panel system, or alternatively finance it through certain types of agreements, and use it within its operations. For example, commercial sectors, like offices, factories or rental properties run as a business, can qualify if the solar panels support their business activity.
Qualifying expenditure: what costs can be included?
Business renewable project developments can claim capital allowances on a wide range of costs associated with installing solar panels. These include:
- Solar PVs – the solar panels themselves, including ground mount solar PV and roof mount solar PV.
- Inverters – the equipment that converts DC electricity generated by solar panels into AC electricity that can be used by the business.
- Battery Energy Storage Systems (BESS) – these allow businesses to store excess energy, and associated electrical infrastructure required for installation may also qualify for capital allowances.
- Mounting equipment – durable foundations for solar panels to sit on.
- Labour – costs directly related to getting the system operational are also usually eligible.
In some cases, costs for necessary structural modifications, such as roof reinforcements, may qualify if they are integral to the installation. The key requirement is that the expenditure is capital in nature and wholly incurred for business use.
What does not qualify?
Not all solar-related costs are eligible for capital allowances. Routine maintenance, repairs and ongoing servicing costs are generally treated as revenue expenses rather than capital expenditure and typically can’t be claimed under capital allowances. However, they may still be deductible as business expenses.
Also, costs not directly related to the solar installation, such as aesthetic building improvements or unrelated electrical upgrades, are often excluded.
Capital allowances as part of the wider solar investment case
Capital allowances can help improve the financial case for commercial solar by reducing the amount of taxable profit a business pays tax on. When combined with reduced energy costs, protection against rising electricity prices and potential export income, they can contribute to a stronger return on investment and a shorter payback period.
As every business has different energy demands, tax positions and project objectives, capital allowances should be considered alongside the wider commercial and operational benefits of solar.
Businesses should always seek advice from a qualified accountant or tax adviser regarding their eligibility for capital allowances and the relief available to them.
What are the benefits of solar panel investments for UK businesses
As a business, investing in solar panels and energy delivers a range of financial benefits, both gained in the short and long term.
Reduced carbon footprint
Investing in solar panels allows businesses to significantly cut their carbon emissions by generating clean, renewable energy on site. This helps reduce reliance on fossil fuels and supports wider sustainability goals, which can also enhance brand reputation.
Discover how Alt-Group prioritises ESG in everything we do and how our services can help your business do the same.
Immediate tax relief and improved cash flow
With capital allowances such as the Annual Investment Allowance (AIA), businesses can often deduct the full cost of solar installation in the year of purchase. This provides immediate tax relief, helping improve cash flow and overall return on investment from year one while making the investment more financially manageable.
Reduced corporation tax liability
By lowering taxable profits, capital allowances directly reduce the amount of corporation tax a business needs to pay. The result? Substantial savings for companies making large-scale solar investments.
Return on investment
Solar panels can deliver a strong return on investment over time through a combination of energy savings, tax reliefs and potential export income. As electricity generated on site offsets reliance on the grid, businesses benefit from ongoing financial returns long after installation. Businesses may also benefit from exporting excess electricity back to the grid, further improving financial returns.
Increased commercial property value
Solar panels featured on commercial premises enhance the value and are desirable to buyers and tenants, particularly as sustainability becomes a higher priority across different industries and sectors.
Long-term cost savings
Once installed, solar panels provide a consistent source of low-cost electricity for many years. This reduces ongoing energy expenses and helps businesses manage operating costs more effectively over the long term.
Accelerated payback period
Tax relief through capital allowances, combined with reduced energy bills and potential export income, can shorten the time it takes to recover the initial investment. This makes capital allowances for solar panels a more appealing option for businesses looking for quicker financial returns.
Protection against rising energy costs
Generating your own business energy helps shield it from fluctuations in energy prices. With costs continuing to rise, solar panels provide greater price stability for future energy expenses.
Improved project payback and investment confidence
Capital allowances can play an important role in reducing the upfront financial impact of a solar investment. When combined with lower electricity costs and long-term energy savings, they can help shorten payback periods and strengthen the overall business case for renewable energy.
For organisations with multiple sites or ambitious sustainability targets, understanding these financial benefits can provide greater confidence when planning future solar investments.
Partner with solar experts
Understanding the financial benefits of solar is just one part of delivering a successful renewable energy project.
At Alt-Group, we work closely with businesses to assess the wider commercial case for solar, helping clients understand how system design, generation forecasts, battery storage, export opportunities and wider financial considerations contribute to overall project performance.
While we do not provide tax advice, our team can help clients evaluate the wider commercial considerations that influence project viability and support informed discussions with accountants, finance teams and other professional advisers.
By taking a holistic approach, businesses can make confident investment decisions that deliver long-term financial, operational and environmental benefits.
Capital allowances on solar panels and commercial renewable energy projects are a smart financial route for businesses looking to invest in long-term sustainability and energy savings. They serve as a key government tax incentive, designed to encourage investment in renewable technologies that deliver both financial and environmental benefits. Combined with reduced electricity costs and long-term energy savings, capital allowances can significantly accelerate the financial return of commercial solar projects.
At Alt-Group, we do more than just install solar panels. Through feasibility studies, design, engineering, installation and ongoing maintenance, we help businesses maximise the long-term value of their renewable energy investments. By considering factors such as energy savings, project performance, battery storage and wider financial benefits, we help organisations make informed decisions with confidence.
We’re invested in your success as much as you are. To discuss your commercial solar panel project, get in touch with our team today.
If your business pays UK tax and invests in solar panels used for commercial purposes, you will likely qualify. The system must be owned or financed appropriately and used within your business operations.
Yes, sole traders can claim capital allowances, provided the solar system is used for business purposes. Eligibility depends on how the system is configured and used.
Battery storage can qualify if it is installed as part of a commercial solar system and used for business purposes.
Yes, you can still claim capital allowances if the solar system is financed, as long as your business is treated as the owner for tax purposes under the agreement.
Absolutely. Much of our work at Alt-Group has been developing and installing ground-mounted solar systems, with many of our clients benefiting from capital allowances for these types of systems.
You typically claim capital allowances in your tax return for the accounting period in which the expenditure occurred.
What are the benefits of solar panel investments for UK businesses
As a business, investing in solar panels and energy delivers a range of financial benefits, both gained in the short and long term.
Investing in solar panels allows businesses to significantly cut their carbon emissions by generating clean, renewable energy on site. This helps reduce reliance on fossil fuels and supports wider sustainability goals, which can also enhance brand reputation.
With capital allowances such as the Annual Investment Allowance (AIA), businesses can often deduct the full cost of solar installation in the year of purchase. This provides immediate tax relief, helping improve cash flow and overall return on investment from year one while making the investment more financially manageable.
By lowering taxable profits, capital allowances directly reduce the amount of corporation tax a business needs to pay. The result? Substantial savings for companies making large-scale solar investments.
Solar panels can deliver a strong return on investment over time through a combination of energy savings, tax reliefs and potential export income. As electricity generated on site offsets reliance on the grid, businesses benefit from ongoing financial returns long after installation. Businesses may also benefit from exporting excess electricity back to the grid, further improving financial returns.
Solar panels featured on commercial premises enhance the value and are desirable to buyers and tenants, particularly as sustainability becomes a higher priority across different industries and sectors.
Once installed, solar panels provide a consistent source of low-cost electricity for many years. This reduces ongoing energy expenses and helps businesses manage operating costs more effectively over the long term.
Tax relief through capital allowances, combined with reduced energy bills and potential export income, can shorten the time it takes to recover the initial investment. This makes capital allowances for solar panels a more appealing option for businesses looking for quicker financial returns.
Generating your own business energy helps shield it from fluctuations in energy prices. With costs continuing to rise, solar panels provide greater price stability for future energy expenses.
Capital allowances can play an important role in reducing the upfront financial impact of a solar investment. When combined with lower electricity costs and long-term energy savings, they can help shorten payback periods and strengthen the overall business case for renewable energy.
For organisations with multiple sites or ambitious sustainability targets, understanding these financial benefits can provide greater confidence when planning future solar investments.