Capital Allowances: Making Your Renewable Investment More Profitable
Investing in renewable energy infrastructure like solar installations and battery storage systems isn’t just good for the environment, it can also be smart tax planning for UK businesses. Capital allowances are a form of tax relief that help businesses reclaim the cost of qualifying assets, reducing taxable profits and improving cash flow. This effectively acts as up-front tax relief on your renewable energy expenditure.
At Verdant Future we help businesses understand and maximise these reliefs so that your investment in sustainable power delivers better financial returns and stronger balance-sheet performance.
Important note:
Capital allowances and tax relief eligibility can vary depending on how a business is structured and how assets are used.
The information on this page is provided for general guidance only.
Businesses must always seek independent advice from their accountant or professional tax adviser to confirm eligibility and treatment before proceeding.
What Are Capital Allowances?
In the UK, capital allowances let companies claim tax relief on certain capital expenditures. This refers to long-lasting business assets such as plant and machinery used in commercial operations. For renewable energy projects, this typically includes:
- Solar photovoltaic (PV) panels and inverters
- Battery storage and associated energy management systems
- Mounting and racking systems (roof or ground mounted)
- Installation costs, including labour and associated electrical works
- Grid connection fees and related plant machinery
By claiming a capital allowance, you can reduce your taxable profits in the year the expenditure is incurred, giving you actual cash tax savings.
How Your Business Can Benefit
Capital allowances provide a range of practical financial benefits for commercial renewable energy projects:
Immediate Tax Relief
Under current UK tax rules, qualifying expenditure on energy-efficient plant and machinery receives 100% first-year relief. This means you can deduct the full cost of the asset, up to £1m, from your taxable profits in the same year you buy it.
This accelerated deduction significantly reduces your corporation tax liability. For every £1 invested, you could save up to 25p off your tax bill at the current 25% corporation tax rate.
Improved Cash Flow
Because capital allowances reduce tax liabilities in the year the assets are purchased, they improve business cash flow. This offers you more working capital during the early years of your renewable investment.
Reduced Payback Period
By lowering your effective project cost through tax relief, capital allowances shorten the financial payback period of your solar or battery storage system. This makes renewable energy projects even more attractive and financially viable.
Support for Larger Assets
If your total capital expenditure exceeds certain limits (e.g., the annual £1 million Annual Investment Allowance), remaining costs can still qualify for partial first-year relief or annual “writing down allowances” meaning you continue to benefit from tax deductions over time.
Key Capital Allowance Types for Renewable Energy
Annual Investment Allowance (AIA)
The AIA allows businesses to deduct the full cost of qualifying assets from taxable profits in the year they are bought. This is often the most valuable relief for solar and battery projects.
Full Expensing
Recent changes to UK capital allowance rules mean that many renewable energy assets can be claimed at 100% first-year expense, providing immediate tax relief that enhances cash flow and investment returns.
Partial Expensing / First-Year Allowance (FYA)
Where expenditure falls outside the AIA limit, a 50% first-year allowance may be available for the remaining balance of qualifying costs, with the remainder written down over time. This helps ensure accelerated tax relief even for larger investments.
Writing Down Allowances (WDA)
If assets are not fully relieved under AIA or first-year allowances, writing down allowances provide annual deductions over the life of the asset, ensuring you continue to benefit tax-wise as you operate the system.
Timing Matters: Planning Your Investment
Capital allowances are most effective when your investment is properly timed and structured within your accounting period. Smart planning can help you:
- Maximise first-year relief
- Align investment with high taxable profit years
- Combine allowances to improve overall financial outcomes
Delaying a qualifying investment can mean missing out on enhanced relief rates currently available, such as the 50% first-year allowance, which is scheduled to operate until at least March 2026 in its current format.
How Verdant Future Helps
Understanding capital allowances alongside renewable energy investment can be complex. In particular for commercial organisations balancing cost, compliance and operational goals.
At Verdant Future, we support you by:
- Reviewing your project investment and identifying all qualifying assets
- Working with your financial team or advisors to maximise available relief
- Incorporating capital allowance benefits into your financial modelling and ROI forecasts
- Advising on timing and structuring to enhance tax outcomes
This means your renewable energy solution, whether solar, battery storage or both, is planned not just for technical performance, but financial efficiency too.
Conclusion: Real Savings for Strategic Energy Investment
Capital allowances make renewable energy investments more financially attractive by accelerating tax relief and improving cash flow. For UK businesses, especially those with significant energy spend, this can transform the payback profile of solar installations and battery storage. This makes green energy solutions not just environmentally responsible, but commercially compelling.
Ready to explore what capital allowances could mean for your organisation?
Contact Verdant Future to start your renewable energy and tax optimisation conversation today.