Guide
Capital allowances on solar and battery storage, in plain terms
Capital allowances often change the effective cost of an energy project materially. They also depend on legislation, the equipment and how it is used, so treat this as orientation before a conversation with your accountant rather than as advice.
The short version
- How you fund the asset affects how it is treated for tax.
- Hire purchase generally puts the asset on your books for allowances purposes. Lease rentals are generally an expense instead.
- Solar and battery equipment often sits in the special rate pool rather than the main pool.
- GRID is a finance broker, not a tax adviser. Confirm the position before choosing a structure on tax grounds.
What capital allowances do
When a business buys qualifying plant and machinery, it cannot simply deduct the cost as an expense. Capital allowances are the mechanism that gives tax relief on that capital spend, either accelerated into the year of purchase or written down over time.
For energy equipment the practical question is which pool the expenditure falls into and which reliefs are available in the year of the spend. That determines how much of the cost you get relief on and when.
What the finance structure changes
This is the part that is directly relevant to a funding decision.
- Hire purchase: the business is generally treated as the owner for capital allowances purposes once the asset is brought into use, and the interest element is relieved as it is charged.
- Finance lease: title stays with the funder, so allowances generally sit with them. The business usually gets relief on the rentals as a deductible expense instead.
- The difference in timing can be significant on a large project, particularly for a profitable business that can use accelerated relief in the year of spend.
Which pool the equipment falls into
Solar panels and much of the associated electrical infrastructure are commonly treated as special rate expenditure rather than main rate, which affects the writing down rate where an accelerated relief is not used.
Battery storage treatment depends on the installation and its use. Equipment that forms part of the building's electrical system is treated differently from standalone containerised plant, and the detail matters.
What to confirm before you sign
Bring these questions to your accountant while the funding structure is still open, not afterwards.
- Which reliefs are currently available for this type of expenditure and does the business have the profits to use them.
- Does the intended structure put the allowances with us or with the funder.
- Which pool does the expenditure fall into and at what rate.
- Does the installation include anything treated as a building cost rather than plant.
Where GRID sits in this
We structure the funding and explain clearly how each option works commercially, including the ownership position, the term and what happens at the end. We do not give tax advice and we will not tell you a project qualifies for a specific allowance.
What we will do is make sure the structure you choose does not accidentally close off an option your accountant would have wanted, which is a mistake we see reasonably often.
Where this applies
FAQs
Common questions
The questions that come up most often on this subject.
Can I claim capital allowances on equipment bought through hire purchase?
Generally the business is treated as the owner for capital allowances purposes once the asset is brought into use, even though title has not yet passed. The interest element is relieved separately as it is charged. Confirm the specifics with your accountant.
Do lease rentals get tax relief?
Rentals under a finance lease are generally treated as a deductible business expense rather than capital expenditure, so the relief comes through the profit and loss account over the term instead of through allowances.
Does solar qualify for capital allowances in the UK?
Solar equipment is normally qualifying plant and machinery, commonly falling into the special rate pool. The rate and any accelerated relief depend on current legislation and on the business's tax position, which is a question for your accountant.
Does GRID advise on tax?
No. We are a commercial finance broker. We explain how each funding structure works and what it does to your cash, and we work alongside your accountant so the structure supports the tax outcome you want.