Are Solar Panels Special Rate? The 6% Writing-Down Rule Explained

Search for the depreciation rate on solar panels and you will find a muddle of answers: 25 years, 20%, 18%, 6%. They mix up three different things. This guide separates them, so you know which number applies to your tax bill and which one is just an accounting convention.

It is general information, not tax advice, and your accountant decides how the rules apply to your accounts. For the full picture of how the reliefs fit together, start with our guide to solar panel capital allowances. This page answers one narrower question: what the special rate pool is and what happens to the money that goes into it.

What special rate actually means

Plant and machinery bought by a business is sorted into pools. Most ordinary equipment goes into the main pool. A smaller group of assets is classed as special rate expenditure and goes into a separate pool with a slower write-down. Solar panels are in that second group. The Capital Allowances Act 2001 names them directly, in section 104A(1)(g), and HMRC's capital allowances manual records that this has been the position since April 2012.

The word special does not mean preferential. It means a different set of rates, and the practical consequence is simple: the reliefs that apply to main rate assets, such as full expensing, do not apply to solar. Full expensing does not cover solar, so a claim that a company can write off all of its solar spend that way is wrong.

Main pool versus special rate pool

Two things differ between the pools. The first is the speed of the writing-down allowance: the main pool is written down at 18% a year and the special rate pool at 6% a year, both on a reducing balance. The second is which first-year reliefs can be used on top. Solar can use the Annual Investment Allowance, and companies can use a 50% first-year allowance on the part of the spend above it, but neither the full expensing relief nor the 40% main rate first-year allowance is open to special rate assets.

That is why the write-down rate matters less than people expect. For a solar buyer it is the rate on whatever is left after the up-front reliefs have taken their share.

How a 6% pool balance falls: a worked example

Take a company that buys a £1.5m rooftop system and has used the Annual Investment Allowance and the 50% first-year allowance, as set out in the worked example on the main guide. That leaves £250,000 in the special rate pool. These figures are illustrative:

• First pool year: 6% of £250,000 is £15,000, leaving £235,000.
• Second pool year: 6% of £235,000 is £14,100, leaving £220,900.
• Third pool year: 6% of £220,900 is £13,254, leaving £207,646.

Because the rate is applied to the falling balance, the deduction shrinks each year and the pool never reaches zero by writing down alone. At the 25% main rate of corporation tax, the first pool year is worth £3,750. The slow tail is the reason tax advisers try to use the up-front reliefs first.

Why most buyers never use the 6% rate

The Annual Investment Allowance gives 100% relief in the year of spend, up to £1m of qualifying expenditure a year. A system costing £400,000, with no other qualifying spend in the period, is covered in full, so nothing is left to enter the special rate pool at all. The 6% rate only bites on large projects, or on businesses that have already used up their £1m on other equipment that year.

The allowance is one limit shared across all your plant and machinery in the period, and across companies under common control. Buying a vehicle fleet or production equipment in the same year can leave less of it for the solar system. If you are planning a large capital year, tell your accountant before you sign, not after.

Depreciation in the accounts is a different thing

Your accounts will normally depreciate the system over its expected life, and that charge is a book entry. It is not deductible for tax. Capital allowances replace it: the tax computation adds back the accounting depreciation and deducts the allowances instead. So a 25 year depreciation period in the accounts says nothing about the rate used for tax. If a quote or a brochure quotes a depreciation rate, ask whether it means the accounting charge or the tax allowance.

What goes into the pool

The panels themselves are named in the statute. A commercial installation also has inverters, mounting, cabling, scaffolding and commissioning, and how each element is classified is a question for your accountant. Ask the installer to split the invoice into clear lines so each can be reviewed. A battery connected to the building's electrical system may be treated as an integral feature, which is also special rate, so confirm the classification with your accountant.

A canopy or carport adds another wrinkle. The frame may be treated as a structure, which can fall under the Structures and Buildings Allowance at 3% a year instead. Agreeing separate contract lines for the structure and the generating equipment makes that distinction clean.

When the funder, not you, holds the pool

The pool belongs to whoever owns the system. Under an operating lease or a power purchase agreement, the funder owns the panels and usually claims the allowances, so no pool appears on your balance sheet and your payments are normally treated as running costs. Under hire purchase you end up owning the system, but the date the spend counts as incurred depends on the contract and when the system is brought into use, so agree the timing of the claim in advance.

What to check before you sign

• Ask your accountant how much of your £1m Annual Investment Allowance is already committed this period.
• Ask the installer or funder for an invoice split by line: panels, inverters, mounting, structure, commissioning.
• Confirm who owns the system under the finance deal, because ownership decides who claims.
• Ask for the tax treatment in writing when comparing quotes, so the figures are like for like.

To see how year-one relief changes the payback on your own numbers, use the finance calculator or read how payback and ROI are worked out. When you want costed finance options that show the route and the tax treatment together, request your comparison. The wider picture of VAT, business rates and reliefs is in our commercial solar tax relief guide.