Investing in commercial solar panels not only reduces energy costs but also offers significant tax advantages for UK businesses (GOV.UK, 2025). Understanding these benefits can enhance your return on investment and support sustainable growth.
Capital allowances enable businesses to deduct the cost of qualifying assets, such as solar panels, from their taxable profits. This deduction reduces the amount of corporation tax owed, which, as of 2025, is set at 25%. Effectively, this means that for every £1,000 invested in qualifying assets, a business can save up to £250 in tax (GOV.UK, 2025).
Annual Investment Allowance (AIA)
The AIA allows businesses to deduct 100% of the cost of qualifying plant and machinery, including solar installations, from taxable profits, up to an annual limit of £1 million. For example, if a company invests £1,000,000 in a solar PV system within a financial year and hasn’t exceeded the AIA limit, it can deduct the entire amount from its taxable profit, resulting in a tax saving of £250,000 (£1,000,000 x 25%).
Timeline for Graphic (Worked Example)
Full Expensing (FE)
If you are unable to claim AIA then tax relief may be available using Full expensing (FE). Introduced in April 2023 and available until March 2026, the FE scheme allows companies to claim capital allowances on qualifying plant and machinery investments. Certain energy-efficient assets, including solar panels, qualify for a 50% first year allowances (FYA), allowing half of the asset’s cost to be deducted from taxable profits in the first year. The remaining balance enters the special rate pool, attracting an annual writing down allowance of 6%. A worked example of this can be seen in the table below:
|
Full Expensing (FE) Example |
|
| Taxable profits in the year |
£1,500,000 |
| Tax bill prior to investment |
£375,000 |
| Investment in solar PV |
£1,000,000 |
| First year allowances under FE on solar PV investment |
50% |
| Tax bill post solar investment |
£250,000 |
| Tax saved from solar investment |
£125,000 |
Comparing the two tax saving opportunities
As you can see from the table below, AIA provides a greater benefit over a shorter time. However, if AIA has already been used up then there are still benefits to be had from full expensing, albeit over a longer period of time.
|
Year |
AIA |
Full Expensing |
| Year 1 |
£250,000 |
£125,000 |
| Year 2 |
£7,500 |
|
| Year 3 |
£7,050 |
|
| Year 4 |
£6,627 |
|
| Year 5 |
£6,229 |
|
| Year 6 |
£5,856 |
|
| Year 7 |
£5,504 |
|
| Year 8 |
£5,174 |
|
| Year 9 |
£4,864 |
|
| Year 10 |
£4,572 |
|
|
£250,000 |
£178,376 |
Conclusion
Investing in commercial solar panels offers UK businesses a combination of energy savings and attractive tax benefits.
The government is currently offering significant tax relief for anyone looking to invest in solar PV as we all work towards the 2030 Clean Energy objectives. Even if you are not able to take full advantage of the AIA savings, the new fully expensing rules still allow you to access significant savings.
By leveraging capital allowances, VAT reclamation, and other incentives, companies can significantly enhance their ROI while contributing to environmental sustainability. S,olar PV provides material financial savings and strong ROIs, now with the available tax incentives, this only enhances the benefits.
Investing in solar PV offers numerous benefits for your business, including:
- Increase your bottom Line – Reducing your energy costs and directly increasing profitability.
- Reduce grid reliance – Protecting against volatile electricity prices.
- Meet your ESG goals – Lower your carbon footprint and become more sustainable.
- Positive brand association – enhance your environmental credentials.
- Add Value to your property – energy efficient buildings demand a higher property value.
Note: Tax law can change. It’s advisable to consult with a tax professional or financial advisor to understand the current benefits and how they apply to your specific situation.
References
GOV.UK, 2025. Claim capital allowances. [Online] Available at: https://www.gov.uk/capital-allowances?utm_source [Accessed 04 02 2025].
GOV.UK, 2025. Financial support for businesses. [Online] Available at: https://businessenergyefficiency.campaign.gov.uk/financial-support-for-businesses/ [Accessed 04 02 2025].
Written By
Chris Cowling
Commercial Director
I have an extensive background in high growth SME’s from a wide variety of sectors. Originally starting in audit, I qualified as a chartered accountant and then progressed through a number of finance roles before switching to wider commercial roles. I love working alongside businesses to help them improve their carbon footprint, continue on the journey towards net zero whilst also gaining a competitive advantage. Outside of work, I spend most weekends outdoors with my twin daughters and wife and watching the NFL on a Sunday evening.
