Capital allowances on solar panels: three worked examples by business size

All three examples apply the same rules: solar panels are special-rate plant and machinery (HMRC Capital Allowances Manual CA22335), the Annual Investment Allowance relieves 100% of the first £1m of qualifying spend in the period, the 50% first-year allowance covers special-rate spend above that for companies, and anything left is written down at 6% a year. The full rule set is on the capital allowances on solar panels page; this post runs the numbers.

Example one: a sole trader spends £60,000

A higher-rate sole trader installs a 50 kWp array on a workshop for £60,000. The AIA covers the whole amount, so £60,000 is deducted from trading profit in the year of purchase. At the 40% rate that is up to £24,000 less income tax, with a smaller effect on Class 4 National Insurance on top. Nothing goes into a pool. What the sole trader cannot use is the 50% first-year allowance — it is a corporation-tax relief — which only matters above £1m of spend.

Example two: a trading company spends £200,000

A company paying corporation tax at 25% buys a 235 kWp rooftop system for £200,000 and has not used its AIA that year. The AIA relieves the whole £200,000 in year one: £50,000 less corporation tax, and nothing in the pool. If the same company had already spent its £1m AIA on vehicles and machinery, the array would instead take the 50% first-year allowance on £200,000 (£100,000) plus 6% of the other £100,000 (£6,000): £106,000 of allowances, £26,500 of tax, and £94,000 left in the special-rate pool to come out at 6% a year.

Example three: a company spends £1.5m

A manufacturer installs 1.7 MWp across two roofs for £1,500,000 with its AIA unused. The AIA relieves £1,000,000. The remaining £500,000 is special-rate spend: the 50% first-year allowance relieves £250,000 in year one and the other £250,000 joins the special-rate pool, where 6% (£15,000) is written down in the same year. Year-one allowances total £1,265,000 — £316,250 of corporation tax at 25% — and £235,000 stays in the pool for £14,100 the following year, declining from there. Had the system been main-rate plant the balance would have attracted the 40% first-year allowance introduced from 1 January 2026; solar is excluded, which is the single most-misread point in this area.

The two traps the examples expose

• The AIA is one limit for everything. A business that buys a fleet, a packing line and an array in the same accounting period can find the £1m used before the solar invoice arrives. Timing the commissioning into a cleaner period is a conversation worth having before the order is placed.
• Ownership decides who claims. Under a lease or a power purchase agreement the funder owns the plant and takes the allowances, pricing some of their value into the rental or tariff. The examples above assume the business owns the array — outright, with a green loan, or on hire purchase.

Read next: capital allowances on solar panels for the rules, the 2026 changes and the finance-route table, and VAT on solar panels for the other line on the same invoice.