Is There a Solar Tax Credit for UK Businesses? What You Get Instead

Search for a solar tax credit and most of the results describe an American scheme. A UK business owner reading them could reasonably think a similar credit exists here. It does not. This guide explains what the UK offers instead, so you can put the right figures into your case before you commit to a system.

It is general information, not tax advice. Your accountant decides how the rules apply to your accounts. The full rules are in our guide to solar panel capital allowances.

Why there is no solar tax credit in the UK

A tax credit reduces a tax bill pound for pound, by a set percentage of what you spend. UK tax law has no equivalent for commercial solar. Instead the relief arrives as a deduction from taxable profit, which is worth your tax rate on the amount deducted rather than the full amount. A company paying the 25% main rate of corporation tax gets 25p back for each pound deducted.

There are also no general grants for private-sector commercial solar in England, so the tax deduction is usually the largest lever. Grants and funding lists what does and does not exist.

What you can claim: capital allowances

Capital allowances turn part of the purchase price into a deduction. Solar panels are special rate expenditure, named in section 104A(1)(g) of the Capital Allowances Act 2001. The Annual Investment Allowance (AIA) gives 100% relief in the year you spend, on up to £1m of qualifying spend a year. It is available to companies and to most unincorporated businesses.

Above £1m, companies can claim a 50% first-year allowance on the excess, and the rest is written down at 6% a year. Full expensing does not cover solar, because it applies to main rate plant. The older Enhanced Capital Allowance scheme for products on the Energy Technology List ended in April 2020, so a product being listed there no longer earns anything extra.

A worked example: what the deduction is worth

A company with taxable profit buys a £400,000 system and has no other qualifying spend that year. The AIA covers all of it, so £400,000 is deductible in year one. At the 25% main rate, that is worth £100,000 of tax. These figures are illustrative, and the real value depends on your profits and tax rate. The same company on a £1.5m system would get a £1.25m year-one deduction, as set out in the worked example on the main guide.

Notice that this is relief on the cost, not a payment to you. If your profit is too small to use the deduction, it creates or increases a loss, and how that loss can be used is a question for your accountant.

VAT and business rates

Commercial solar installations are charged 20% VAT, not the domestic 0%. A VAT-registered business can normally reclaim it, so the allowance is worked on the VAT-exclusive cost. In England, rooftop solar used for your own consumption has a 100% business rates exemption, covered in our business rates and Smart Export Guarantee guide. Export payments for surplus power are taxable income.

Does the funding route change who gets the relief?

Yes. Allowances follow ownership. If you buy outright or with a loan, you own the system and you claim. Under an operating lease or a power purchase agreement, the funder owns the panels and usually claims, and your payments are normally treated as running costs. This is the real trade-off behind a no upfront cost offer: you give up the allowance in exchange for no capital outlay.

Three myths that cost businesses money

• "There is a 100% write-off under full expensing." Full expensing is for main rate plant and machinery. Solar is special rate, so it sits outside it. The AIA is the route that normally gives the same year-one result while total qualifying spend is within £1m.
• "The super-deduction still applies." The super-deduction was a temporary relief for companies and ended in March 2023. It is not available for a system bought now.
• "Any listed product earns extra relief." Enhanced Capital Allowances ended in April 2020, so being on the Energy Technology List no longer gives anything extra.

Sole traders, partnerships and companies

The AIA is open to companies and to most unincorporated businesses, so a sole trader or partnership buying a system can usually deduct the whole cost, up to the limit, from that year's profits. The 50% first-year allowance above the limit is for companies only. Our guide for sole traders and small businesses covers what that means in practice.

Questions to put to your accountant

• How much of the Annual Investment Allowance is already used this accounting period?
• Should I claim the full allowance, or less, to match my profits?
• Which elements of the invoice are plant, and which are structure or building work?
• If I lease or sign a PPA, how are the payments treated in my accounts?

What to do next

• Ask your accountant how much of your £1m AIA is already committed this period.
• Compare finance quotes after tax, not by monthly payment alone.
• Ask each funder who claims the allowances under their proposal.

To see how the relief changes your numbers, use the finance calculator, or request costed finance quotes and we reply by email. For the wider picture, read our commercial solar tax relief guide.