CALL
CONTACT US
0203 834 9440
Call us today on 020 3834 9440

Can I Claim Commercial Solar Panels Cost as an Expense

Claiming that commercial solar panels can be considered a business expense is possible through UK tax relief schemes. However, this is usually done via capital allowances instead of regular operational expenses.

Solar panels are long-term assets. Therefore, the initial investment appears on the balance sheet. This approach provides ongoing financial benefits over time rather than an immediate deduction. 

For UK businesses looking to lower energy costs and improve sustainability, investing in solar panels is becoming a smart choice. Although the cost is treated as capital expenditure (CapEx), companies can access considerable tax relief through programs like the Annual Investment Allowance (AIA), First-Year Allowances (FYA), and Writing Down Allowances (WDA).  

Understanding how these incentives work helps CFOs, finance managers, and operations teams optimise cash flow, manage taxes effectively, and plan for long-term energy savings. 

Solar Panels Key Tax Businesses Incentives for UK

For UK businesses, commercial solar PV panels are more than just a sustainability initiative. They are a strategic investment that can offer long-term financial gains. By understanding the available tax incentives, finance teams can plan capital spending effectively, improve cash flow, and increase the return on solar investments. Key tax incentives that can lower the initial cost of commercial solar power system include: 

Annual Investment Allowance (AIA) 

✅ Deduct 100% of commercial solar panel costs from taxable profits in the first year. 

✅ Annual limit: £1 million. 

✅ Ideal for offices, retail outlets, warehouses, manufacturing plants, and hospitality facilities. 

50% First-Year Allowance (FYA) 

✅ Available if a company exceeds the AIA limit. 

✅ Claim 50% of the remaining commercial solar installation cost in the first year. 

✅ The remaining balance is written down using Writing Down Allowances (WDA) at 6% per year. 

✅ Scheme available until 31 March 2026. 

Writing Down Allowances (WDA) 

✅ Apply to costs not covered by AIA or FYA. 

✅ Deduct a portion of the asset’s value each year. 

Strategically applying these allowances allows businesses to manage their commercial solar system cost while accelerating tax relief and improving capital efficiency. By combining the AIA, FYA, and WDA with careful planning, finance teams can strengthen cash flow, lower the effective cost of solar investment, and secure a measurable return. Consulting a tax professional ensures all eligible reliefs are claimed, enabling companies to fully capitalise on their solar energy strategy. 

VAT on Solar Panels for Business

VAT is another consideration for businesses investing in solar panels. VAT-registered organisations can typically reclaim the standard 20% VAT on both purchase and installation costs as long as installation is directly related to the business. Correctly recording VAT on commercial solar PV installations or VAT on solar panels for business ensures companies maximise cash flow and avoid unnecessary costs. 

VAT-registered businesses can usually reclaim 20% VAT on: 

✅ Commercial solar panel costs 

✅ Installation fees 

✅ Associated solar array systems costs 

Accurately recording VAT on solar panels, VAT on solar panels for business, or VAT on commercial solar PV installations ensures cash flow is maximised and avoids unnecessary costs. 

Solar Panels as Part of Capital Expenditure (CapEx)

When a business purchases and owns a solar PV system outright, the expenditure is treated as CapEx. This has several implications: 

Asset on the Balance Sheet:

The solar array system costs are recorded as a fixed asset.

Depreciation and Allowances:

Instead of expensing the full cost immediately, businesses can spread deductions over the asset’s life or claim accelerated tax relief via capital allowances.

Ownership and Control:

The business retains all generated electricity and potential income from surplus energy sold to the National Grid through the Smart Export Guarantee (SEG), which is treated as trading revenue.

Operational Costs:

Maintenance, monitoring, and cleaning are treated as OpEx and are fully deductible in the year incurred.

Alternatively, businesses may choose a Power Purchase Agreement or Solar as a Service model, where a third party owns the system, and electricity costs are treated as operational expenditure. 

Understanding CapEx vs OpEx

CapEx refers to investments in long-term assets that provide benefits for more than one year, such as buildings, machinery, or solar panels.

OpEx covers day-to-day expenses like rent, utilities, and salaries, which are fully deductible in the same year. Treating solar panels as CapEx allows businesses to optimise tax reliefs while adding a long-term energy-generating asset. 

CapEx 

✅ Investments in long-term assets providing benefits for more than one year. 

✅ Examples: buildings, machinery, solar panels. 

✅ Costs are gradually expensed over the asset’s life. 

OpEx 

✅ Covers day-to-day running costs like rent, salaries, and utilities. 

✅ Fully deductible in the year incurred. 

Understanding this distinction helps finance teams plan budgets, forecast ROI, and report accurately. 

commercial solar installation cost in the UK

Impact Across Business Sectors

Commercial solar panels provide practical benefits across multiple sectors: 

Offices 

✅ Lower energy bills 

✅ Improve corporate sustainability reporting 

Retail Outlets 

✅ Reduce operational costs 

✅ Enhance environmental credentials 

Warehouses and Fulfilment Centres 

✅ Support energy-intensive lighting, heating, and automation systems 

Manufacturing Plants 

✅ Cost savings for high electricity consumption 

✅ Contribute to carbon reduction goals 

Hospitality and Leisure Facilities 

✅ Long-term energy savings 

✅ Align with sustainability expectations from customers 

Considering commercial solar panel cost, solar array systems costs, and commercial solar installation cost helps managers plan budgets accurately and measure ROI. 

Are Commercial Solar Panels Cost Exempt from Business Rates?

Yes, eligible solar panels are exempt from business rates in England and Wales until 31 March 2035. The exemption applies to rooftop or building-integrated solar panels used primarily for the business’s own electricity consumption.

Ground-mounted solar farms are treated differently and may still be rateable. Businesses must notify the Valuation Office Agency (VOA) or local council to apply the exemption during property valuation. 

Type of Installation:

Rooftop or building-integrated systems used primarily for business energy consumption.

Eligible Equipment:

Includes solar panels, battery storage, and wind turbines for renewable energy.

Ground-Mounted Systems:

Typically treated separately; may remain rateable.

How to Claim:

Notify the Valuation Office Agency (VOA) or local council post-installation.

This relief applies broadly to offices, retail outlets, warehouses, manufacturing plants, and hospitality or leisure facilities.

It was introduced to encourage investment in renewable energy and support net-zero targets by removing a previous financial disincentive. 

Practical Advice for Businesses

✅ Ensure installations are wholly and exclusively for business use to qualify for allowances. 

✅ Confirm the system is permanently fixed to the property. 

✅ Work with a tax advisor or accountant to claim all eligible reliefs correctly and optimise CapEx strategy. 

✅ Review both commercial solar panel costs and ongoing operational expenses to understand long-term financial benefits. 

Next Steps for Your Business Solar Investment

In summary, UK businesses can claim the cost of commercial solar panels as capital expenditure. They can also benefit from significant tax relief through the AIA, FYA, and WDA.

VAT is often reclaimable, and eligible solar PV systems are exempt from business rates until 2035. Installing solar panels lowers operational energy costs and adds a valuable long-term asset to the balance sheet. It also supports sustainability commitments. 

Finance and operations leaders who understand the cost of commercial solar installation, VAT issues, and available capital allowances can make confident decisions. This will strengthen both financial results and environmental performance. 

Take the next step toward a smarter energy strategy and find out how solar energy can help achieve your decarbonisation goals while improving long-term cost efficiency. 

Contact Excel Energy UK today by completing our simple enquiry form to arrange a FREE site consultation and quote.