Capital allowances on solar panels

Can a company claim capital allowances on solar panels?

Yes, where the panels are capital expenditure on a business asset. Capital allowances are a tax relief that lets a business deduct some or all of the value of an item from its profits before it pays tax, and they cover plant and machinery. ^[5]

Solar panels are business assets, so the cost is not claimed as a day-to-day expense. GOV.UK separates capital allowances from running costs, items that are the trade of the business, and interest or finance costs for buying assets. A limited company deducts those other costs from profits as a business cost. ^[5]

What type of asset are solar panels?

HMRC's manual says that with effect from 1 April 2012 for Corporation Tax, all capital expenditure on the provision of solar panels is specifically designated as special rate expenditure. ^[1]

The reason was clarity. Before then, solar panels, including photovoltaic panels that generate electricity and solar thermal systems that provide hot water, were generally treated as special rate because they were integral features of buildings or structures or long life assets. ^[1]

What rate applies?

Special rate expenditure goes in the special rate pool. GOV.UK lists solar panels among the items in that pool and gives the special rate as 6%. ^[3] The main pool rate is 14% from April 2026, 18% before. ^[3]

Writing down allowances at 6% a year spread the relief over many years. A company that wants relief sooner can look at the other allowances that may apply. ^[3] One of them is explained in our annual investment allowance guide.

Which other allowances can be used?

HMRC's manual says that when expenditure qualifies for more than one type of allowance, a company can choose which to claim, but it cannot claim more than one allowance on the same amount. ^[2]

Its worked example, for a company incurring £600,000 on solar panels in an accounting period, shows the options for panels: the annual investment allowance, a 50% first-year allowance or special rate writing down allowances. In the example, the company uses £1 million of AIA across solar panels and an electrical system, then a 50% first-year allowance on the remaining £100,000 of panels, which gives £50,000. The remaining £50,000 goes to the special rate pool in a later accounting period. ^[2]

That is HMRC's own illustration and not a statement of what any company will be able to claim. The AIA limit is £1 million for each accounting period. ^[4]

The same example shows full expensing applying to laptops but not to the solar panels. ^[2] GOV.UK's 40% first-year allowance is limited to plant and machinery that qualifies for the main rate, so special rate items like solar panels are outside it. ^[8]

Can panels on a rented or let building be claimed?

GOV.UK says allowances can be claimed on fixtures whether the business rents or owns the building, but only the person who bought the item can claim. ^[6]

For a business that lets out residential property, GOV.UK says items can only be claimed if the building has multiple residential units, like a block of flats, and the item is for a communal part of the building. ^[6]

What if the building was bought with panels already installed?

When a building is bought from a previous business owner, GOV.UK says the buyer can usually only claim for integral features and fixtures that the seller claimed for. The value of the fixtures has to be agreed with the seller, and without that agreement the buyer cannot claim for them. ^[6]

When and how is the claim made?

A limited company claims on its Company Tax Return and includes a separate capital allowances calculation. ^[7] To claim the AIA or a first-year allowance, the company has to claim in the accounting period when it bought the item. A company that does not claim the full cost that way can claim part of it using writing down allowances at any time while it still owns the item. ^[7]

The right mix depends on the cost, the company's profits and how the panels were installed. A specialist can look at the particular installation. A review of your capital allowance claims could identify allowances your business may be entitled to.