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Install Solar Panels & Slash your Tax Bills

Let the taxman pay 25% of the Solar Panels

UK business owners & directors have you asked your accounts and CFO about the tax advantages of installing Solar PV and Battery storage at your premises yet. If not here is a simple guide as to the potential tax saving you could be making when installing Solar PV and Battery Storage on your buildings and land.

The UK Tax Advantages of Installing Solar PV and Battery Storage for Your Business

With energy costs remaining volatile and pressure growing on businesses to decarbonise, many UK companies are now looking seriously at solar PV and battery storage. What is often underestimated, however, is just how powerful the UK tax system has become in accelerating the business case.

Thanks to Full Expensing, First Year Allowances (FYA), and the Annual Investment Allowance (AIA), investing in solar and battery systems can now deliver immediate and material tax savings, significantly reducing the net cost of installation.

This article explains how the incentives work, who can benefit, and why the timing matters.

1. Solar PV and Battery Storage Qualify as Plant & Machinery

Under current UK tax rules, solar panels and associated electrical systems are treated as plant and machinery, meaning they qualify for capital allowances rather than being written off slowly as part of a building.

The Lloyds Banking Group guidance confirms that solar panels, along with electrical systems and energy infrastructure, are explicitly in scope for accelerated capital allowances .

This classification is critical, as it unlocks the most generous tax reliefs available to UK businesses.

2. Full Expensing: 100% Tax Relief for Companies

For companies subject to Corporation Tax, the Full Expensing scheme allows qualifying assets to be written off at 100% in the first year.

In practical terms:

  • Every £1 invested can be deducted in full from taxable profits
  • At a 25% Corporation Tax rate, this delivers up to 25p of tax relief per £1 invested
  • A £1m solar PV and battery project could therefore reduce a company’s tax bill by up to £250,000 in year one

This is not a grant or rebate — it is a direct reduction in Corporation Tax liability and has a real cashflow impact .

3. First Year Allowances (FYA) for Special-Rate Assets

Some elements of energy systems may fall into the special rate pool, which qualifies for a 50% First Year Allowance, with the remainder written down over time.

While this is slightly less generous than full expensing, it still significantly accelerates tax relief compared to historic rules and improves early-year project economics.

4. Annual Investment Allowance (AIA): Not Just for Companies

For businesses not subject to Corporation Tax — including:

  • Sole traders
  • Partnerships
  • LLPs

the Annual Investment Allowance (AIA) can be used instead.

AIA allows up to £1 million per year of qualifying expenditure to be written off at 100% in the year of purchase, making it highly relevant for SMEs investing in on-site generation and storage .

5. Battery Storage: Increasingly Part of the Allowance Picture

Battery storage is increasingly treated as an integral part of a solar installation rather than a standalone asset, particularly where it is used to:

  • Store on-site renewable generation
  • Reduce peak demand
  • Improve energy efficiency

In practice, many battery systems installed alongside solar PV qualify for the same accelerated capital allowances, significantly strengthening the combined investment case.

6. Asset Finance Does Not Remove the Tax Benefit

A common misconception is that using asset finance or hire purchase removes eligibility for capital allowances. In reality, new and unused assets acquired via hire purchase can still qualify for Full Expensing or AIA, provided ownership passes to the business.

This means businesses can:

  • Preserve cash
  • Spread repayments
  • Still benefit from up-front tax relief

This combination is particularly attractive for capital-intensive energy projects.

7. Why Timing Matters

The Full Expensing regime was introduced to stimulate immediate business investment and replaced the previous Super Deduction scheme. While currently in force, tax incentives can change.

For businesses already considering solar and battery projects, delaying installation could mean:

  • Higher net costs in future
  • Slower payback
  • Lost tax efficiency

Early movers benefit from both energy savings and front-loaded tax relief.

8. Beyond Tax: The Wider Financial Case

While tax relief accelerates returns, it sits alongside:

  • Reduced grid electricity costs
  • Protection against future energy price rises
  • Improved ESG and sustainability credentials
  • Potential revenue from export, flexibility, or local energy use

In many cases, tax relief alone can cut the effective net cost of installation by 20–30%, before energy savings are even considered.

9. A Practical Example

A company investing £500,000 in solar PV and battery storage could:

  • Deduct the full £500,000 from taxable profits
  • Reduce its Corporation Tax bill by up to £125,000
  • Finance the system while benefiting from immediate tax relief
  • Generate long-term energy savings for 20–30 years

This fundamentally changes how boards and finance teams should view renewable energy investment.

Download Lloydsbank Annual Investment Allowance

Final Thought

Solar PV and battery storage are no longer just environmental upgrades — they are tax-efficient capital investments supported directly by UK fiscal policy.

For business owners and finance leads, the key takeaway is simple:

If you are paying Corporation Tax and buying electricity from the grid, you are already funding energy assets — just not your own.

With the current tax framework, investing in solar and storage allows you to redirect that spend into assets you control, supported by some of the most generous capital allowances the UK has ever offered.

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