Could capital allowances make the difference between a commercial solar project going ahead or being put on hold? We’ve been looking more closely at the tax relief available on commercial solar panels, battery storage and solar repowers.
Recently, a client asked us about the potential Corporation Tax savings on a large commercial solar installation we’d quoted for. It’s something we’ve generally kept out of our proposals. Not because it isn’t important, but because different parts of an installation can qualify for different allowances, and the calculations can get messy quickly.
We usually focus on what we can confidently estimate: installation costs, generation, electricity savings and payback. But on a large investment, leaving tax relief out altogether could mean overlooking a significant financial benefit. We’re solar installers, not accountants, but we wanted to share what we’ve learned.
What’s changed in the Autumn Budget?
Capital allowances are worth revisiting whenever the rules change, particularly for businesses considering a major solar or battery investment. The measures discussed in relation to the 2026 Budget include a proposed increase in a main-rate first-year allowance and a reduction in the main-rate writing-down allowance. These measures should not be confused with the existing 50% special-rate first-year allowance.
| Allowance | Rate and timing | Why it matters |
|---|---|---|
| Main-rate first-year allowance | Proposed 40% → 50%, from 1 Jan 2027 | Only for eligible main-rate expenditure |
| Main-rate writing-down allowance | Proposed 14% → 12%, from Apr 2027 for Corporation Tax | Changes the timing of relief on main-rate pool balances |
| Annual Investment Allowance | £1 million limit | Potentially relevant to qualifying solar equipment |
| Full expensing | 100% for eligible new main-rate assets | May be relevant to certain project components |
| Special-rate first-year allowance | 50% for eligible new special-rate assets | Different from the proposed main-rate measure |
For authoritative current information, see HMRC’s capital allowances guidance and writing-down allowances guidance.
First, a 100% allowance doesn’t mean a 100% refund
If a company claims a 100% capital allowance on £100,000 of qualifying expenditure, it doesn’t receive £100,000 back. It deducts £100,000 from taxable profits. At a 25% Corporation Tax rate, that could mean a £25,000 tax saving, provided it can use the deduction at that rate.
The main capital allowances explained
Annual Investment Allowance (AIA)
AIA can provide a 100% deduction for up to £1 million of qualifying plant and machinery expenditure. Solar panels generally fall into the special-rate category, so AIA is often important. But it isn’t reserved for solar: other investments may have used some of the available allowance, and connected companies may need to share it.
Full expensing
Full expensing allows qualifying companies to deduct 100% of eligible new main-rate plant and machinery expenditure. Some electrical or battery-related components might qualify, depending on their precise classification. We wouldn’t assume every battery or inverter does.
50% special-rate first-year allowance
Eligible new special-rate expenditure outside AIA may qualify for an initial 50% deduction. The balance may then be relieved through writing-down allowances. This is a different allowance from any newly announced main-rate first-year measure.
Writing-down allowances
This was one of the most useful things we learned: not claiming the full amount in year one doesn’t necessarily mean losing the remaining relief. Writing-down allowances let a business deduct a percentage of the remaining qualifying balance over later periods. The percentage depends on the asset pool and the rules applying at the time. See HMRC’s explanation.
What could this mean for a £1.5 million solar installation?
Let’s take a fictional manufacturing business investing £1.5 million in rooftop solar PV and battery storage. For illustration only, assume £1.3 million qualifies for capital allowances, the business has the full £1 million AIA available, and it can use deductions at a 25% Corporation Tax rate.
Scenario 1: AIA plus the special-rate allowance
£1 million is deducted through AIA. The remaining £300,000 is assumed to qualify for the 50% special-rate first-year allowance, creating a further £150,000 initial deduction. That makes the illustrative initial Corporation Tax saving £287,500. The remaining £150,000 of qualifying expenditure may receive writing-down allowances in future years.
Scenario 2: AIA plus full expensing
Suppose instead that £300,000 of the expenditure is eligible new main-rate equipment qualifying for full expensing. Together with £1 million claimed through AIA, the full £1.3 million is deducted initially. The illustrative initial Corporation Tax saving is £325,000.
| Illustrative comparison | AIA + special-rate | AIA + full expensing |
|---|---|---|
| Total project cost | £1,500,000 | £1,500,000 |
| Qualifying expenditure | £1,300,000 | £1,300,000 |
| AIA deduction | £1,000,000 | £1,000,000 |
| Other first-year deduction | £150,000 | £300,000 |
| Potential initial tax saving | £287,500 | £325,000 |
| Remaining qualifying balance | £150,000 | £0 |
These scenarios reflect different hypothetical equipment classifications, not two options a company can freely choose. The additional potential relief on the £150,000 balance would be spread over future periods and depends on the company’s circumstances.
At a glance: when could the tax benefit arise?
■ Initial relief ■ Potential later relief. The chart shows illustrative tax effects, not cash grants.
Discuss a commercial solar project
Which installation costs could qualify?
Solar installations include much more than panels: inverters, mounting, cabling, switchgear, battery storage, labour, scaffolding and sometimes extensive civil works. The treatment of each element can differ. Directly attributable installation costs may form part of qualifying expenditure, but not every project cost automatically qualifies.
That’s why we think detailed equipment and installation cost breakdowns are useful. They give a client’s accountant something more practical to work with than a single headline quotation.
What about solar farms?
Qualifying equipment in a ground-mounted solar project may attract capital allowances, but land purchases, foundations, roads and civil engineering need separate consideration. A business owning and operating a solar farm may also be in a different position from a landowner simply leasing land to a developer. The investment and ownership structure should be reviewed early.
Can you claim tax relief on a solar repower?
This is especially relevant to us because we receive plenty of enquiries about repowering existing commercial solar installations. Some systems are ageing, underperforming or experiencing repeated inverter failures. Others could benefit from new equipment or added battery storage.
Qualifying new plant and machinery purchased as part of a repower may attract capital allowances, but a repair and a capital improvement aren’t necessarily treated in the same way. Some repairs may instead be deductible as revenue expenditure, depending on the circumstances.
| Repowering work | What to check |
|---|---|
| Replacing panels | Whether new equipment is qualifying capital expenditure |
| Replacing inverters | Repair versus capital replacement and asset classification |
| Adding batteries | Eligibility and main-rate versus special-rate classification |
| Electrical upgrades or expansion | Qualifying equipment and directly attributable costs |
When assessing a repower, we think it’s sensible to look at reliability, generation, maintenance costs and potential tax relief together.
Don’t forget local grants and incentives
Capital allowances aren’t the only support worth checking. Depending on the location and business, there may be local or regional decarbonisation grants, business energy efficiency programmes or community energy funding. These schemes change frequently and often have eligibility restrictions.
Good starting points are your local council, the GOV.UK business finance and support finder, Ofgem’s business grants guidance, Business Wales and Business Energy Scotland.
Check before placing orders or starting work: some grants won’t support projects already underway. Grant funding can also affect the tax treatment of the expenditure, so it’s worth checking with the funder and accountant rather than assuming both benefits can be claimed in full.
Could tax relief change solar payback?
Potentially. Our proposals normally focus on installation cost, projected generation, electricity savings and expected payback. Tax relief adds another consideration, but it isn’t quite right to deduct a theoretical tax saving from the purchase price and call the result a guaranteed payback period. Timing, taxable profits and other project costs matter.
Is it worth splitting an installation across accounting periods?
Sometimes a business may want to consider how the timing of expenditure affects its available allowances. But splitting an installation can mean repeating scaffolding, plant hire, welfare and mobilisation costs. Any possible tax benefit needs to be weighed against those additional costs.
What we’ve learned about including tax relief in proposals
Our main takeaway is that it’s worth raising capital allowances earlier in the conversation, without presenting ourselves as tax advisers. A rough illustration, clearly explained, can help a client see another part of the investment case.
We’d always make clear that estimates aren’t guaranteed, the business may have used some AIA already, equipment classifications matter, taxable profits affect the benefit, and an accountant should confirm the claim. The same applies to any grants.
At Bailey Renewable Solutions, we’ll keep focusing on what we know best: designing, installing, repowering and maintaining commercial and industrial solar systems. But we’ll also make sure clients have a clear equipment breakdown and know which financial questions are worth asking.
Get in touch about your solar project
A note on tax: This reflects our understanding as of 3 November 2026. We’re commercial solar installers, not tax experts, and we’re sharing what we’ve been navigating while preparing proposals for our clients. Please do your own research and check the latest guidance with your accountant before relying on any figures. The financial examples are illustrative; actual eligibility, savings and timing depend on your business and the equipment involved.
