Solar Panels for Business: How UK Tax Incentives Can Cut Your Costs
The UK government has introduced a series of tax incentives for businesses investing in solar energy. This could mean a saving in corporation tax in addition to the cost savings on your energy bills.
Annual Investment Allowance
One of the best incentives for solar panels is the Annual Investment Allowance (AIA), which means a business can deduct the full value of the expenditure of installing solar panels from its profits before tax. The AIA amount is £1m.
50% First-Year Allowance
If a business has utilised its AIA pool on other expenditure in a year or the AIA does not apply, the 50% First-Year Allowance (FYA) is available. 50% of the expenditure can be deducted from the profits before tax in the first year, and the remaining 50% can be added to the special rate pool in subsequent years.
An indicative example of tax savings utilising the AIA
Expenditure on installing solar panels | £50,000 |
Corporation Tax main rate 2025 | 25% |
AIA tax saving | £12,500 |
Cost of solar installation after tax saving | £37,500 |
An indicative example of applicable schemes (utilising both schemes)
In its accounting period ending 31 December 2024, Jones and Smith Ltd incurs the following expenditure on plant and machinery:
£700,000 on new solar panels; and
£500,000 on a new electrical system for the business premises.
The expenditure on the solar panels and the electrical system is eligible for the 50% First-Year Allowance (FYA) (CA23174A), the AIA, or special rate WDAs (CA23200).
Jones and Smith Ltd claims the following:
£1m of AIA for the £500,000 incurred on the electrical system and £500,000 of the expenditure incurred on the solar panels.
50% FYA on the remaining £200,000 incurred on the solar panels, which gives an allowance of £100,000. The remaining £100,000 of expenditure can be added to the special rate pool in a subsequent accounting period.
Please note that tax rates and incentives change. The above information is not intended to be formal, professional, or legal advice. If you require specific advice, please consult a suitably qualified professional.
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Posted by
, Chiltern Solar
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