Commercial solar funding, tax relief & incentives

There is a persistent myth that commercial solar runs on grants. For the public sector — schools, NHS, councils — that can be true through Salix decarbonisation funding. But for a private commercial property owner, landlord or investor, the economics are driven by a stack of tax reliefs and incentives that, combined, can take a gross 7-year payback down to roughly 5–6 years, or remove the capital cost entirely through a third-party-funded roof lease. Every figure below is current as of June 2026 and the lever that matters most — the 100% first-year tax relief — comes from the Annual Investment Allowance, not from "full expensing".

The one nuance most installers get wrong

Solar PV is classified by HMRC as a "special rate" (integral feature) asset, not main-rate plant. That single fact changes the tax position. The headline full-expensing regime gives 100% first-year relief only on main-rate plant; because solar is special-rate, full expensing gives just the 50% First-Year Allowance on solar. The genuine 100% route is the Annual Investment Allowance (AIA) — permanently set at £1m — which does apply to special-rate spending. So almost every commercial solar install under £1m can still be written off in full in year one, via AIA. Anyone telling you solar qualifies for "100% full expensing" has it wrong, and it is worth knowing because it also affects landlords: full expensing and the 50% FYA are companies only and are not available for assets bought to lease, so landlords and roof-lease structures rely on AIA (100% up to £1m) plus the 6% writing-down allowance above the cap. Sole traders and partnerships use AIA too. None of this is tax advice — take your own — but it is the framework we model against.

The funding & incentive stack

How the levers stack for an owner

On an owner-occupied or owner-funded install, the stack is: 0% VAT on the supply-and-install (since April 2022, commercial), 100% AIA writing off the capital against profit in year one (worth roughly 25% of the spend in cash terms at the 25% corporation-tax rate), the business-rates exemption to 31 March 2035 so the array never raises your rateable value, the Smart Export Guarantee paying ~12p/kWh on surplus, and tradable REGOs at around £15/MWh as a modest top-up. Self-consumption — using the generation on site rather than exporting it — is what drives the underlying return, because each self-consumed unit displaces grid power at the full ~24–28p/kWh rather than the lower export rate.

If you would rather commit no capital, two routes remove it entirely. Asset finance or an operating lease spreads the cost over the system's life and is often cash-flow positive from day one. A third-party-funded roof lease (or PPA) hands the capex, ownership and maintenance to a developer in exchange for rent plus a discounted power supply to your occupier — though it is a registrable interest that needs lender and insurer consent, and the tax benefits then sit with the developer rather than you. We model all of these against your covenant, lease length and balance-sheet preference.

A word on grants and the public sector

If your asset is occupied by a public body — an FE college, an NHS trust, a local authority — the occupier may be able to access Salix Public Sector Decarbonisation Scheme funding, which can cover a large share of capex. For privately-let or owner-occupied commercial property, there is no equivalent broad grant; the AIA-plus-incentives stack and the funded-roof-lease route are how the numbers are made. We map every applicable lever in your free feasibility study and tell you honestly which apply to your situation.

Each relief in detail

Commercial solar rarely attracts a cash grant in the private sector, but the tax and levy reliefs are where the real money sits. Treated properly, they shorten payback by a year or more. Each works differently, and they stack. Take professional advice on your own position, but here is how each one behaves.

Annual Investment Allowance (AIA) — the workhorse

Solar PV is classed as a special-rate (integral features) asset, so it does not qualify for the headline 100 percent full expensing on the main pool. What it does qualify for is the Annual Investment Allowance, which gives 100 percent relief on qualifying spend up to £1m per year. For almost every commercial rooftop scheme, AIA covers the whole installation in year one.

Worked example. A landlord installs a 250kWp system for £200,000 ex VAT. Claiming AIA writes the full £200,000 against taxable profit in the year of expenditure. At the 25 percent main corporation tax rate, that is a cash tax saving of £50,000. The net cost of the asset falls from £200,000 to £150,000 before a single kilowatt-hour is generated. That is the single largest lever on payback, and it is why timing the spend against your accounting year-end matters.

50 percent first-year allowance and full expensing — the nuance

Full expensing (100 percent) applies to main-pool plant. Because solar is special-rate, it instead falls under the 50 percent first-year allowance route, which is available to companies only, and only for assets bought for use in the business rather than to lease out. Under that route you relieve 50 percent in year one and the balance through the 6 percent writing-down allowance pool over following years. For a landlord buying an asset to let with the building, neither full expensing nor the 50 percent FYA applies, which is exactly why AIA is the sensible default for property owners. If you are an owner-occupier company, compare AIA against the 50 percent FYA and take advice, because AIA usually wins by clearing the whole cost at once.

Business-rates exemption to 2035 — worked example

Eligible on-site renewable generation, including solar PV and connected battery storage, is exempt from business rates until 2035. This removes a running cost that would otherwise erode returns each year. Worked example. A rooftop array that adds an estimated £3,000 to a property's rateable-value liability would, at a rates multiplier of roughly 50 pence in the pound, cost about £1,500 a year. Over ten years to 2035 that is around £15,000 of avoided cost, entirely separate from the electricity savings. It is a quiet relief that many appraisals forget to add in.

0 percent VAT

Since April 2022 the installation of solar panels has carried a 0 percent VAT rate. For a VAT-registered business this is a timing benefit rather than a saving, but it removes the upfront cash outlay of paying VAT and reclaiming it later. Confirm your installer applies the zero rate correctly on the invoice, and keep the paperwork for your records.

Smart Export Guarantee (SEG)

Power you generate but do not use on site can be exported and paid for under the Smart Export Guarantee. SEG is supplier-set, not a fixed government tariff, and current rates sit around 12 to 16 pence per kilowatt-hour. Export income is real but secondary. Self-consumption is worth far more, because every unit you use on site displaces grid electricity at roughly 24 to 28 pence per kilowatt-hour. Design for self-consumption first, then treat SEG as the mop-up for surplus.

REGOs and green attributes

Each megawatt-hour you generate can be certified with a Renewable Energy Guarantee of Origin, worth roughly £15 per megawatt-hour. On its own this is marginal income, but for landlords the certificates support genuine green-lease and net-zero claims to tenants, which in prime markets underpins the rental and capital premium associated with better-rated space.

How to claim and time it

Capital allowances are claimed through your corporation tax or income tax return, not through a separate application. The mechanics are straightforward but the detail decides how much you keep.

• Identify the qualifying spend. The installed cost of the PV system, inverters, mounting and associated wiring is generally qualifying plant. Keep the installer's itemised invoice so the split is defensible.
• Claim in the right year. AIA relief lands in the accounting period the expenditure is incurred. Bringing a project forward or back across a year-end can move a large deduction between tax years, so plan the spend deliberately.
• Pool the balance correctly. Where AIA does not absorb the whole cost, the remainder goes to the special-rate pool and attracts the 6 percent writing-down allowance each year.

Section 198 fixtures election on purchase or sale. Solar PV fixed to a building is a fixture. When a commercial property changes hands, buyer and seller can agree a section 198 election that fixes the value attributed to the fixtures, including the solar array, for capital-allowance purposes. Get this wrong and the allowances can be lost entirely for the new owner. If you are buying a property with existing solar, raise the fixtures position in due diligence and agree the election before completion. If you are selling, understand that a poorly handled election can strand relief you have already benefited from. This is specialist ground.

Because the numbers are large and the rules move, take professional advice from an accountant or a capital-allowances specialist before you commit. The reliefs above are set out as a general 2026 position, not as advice on your specific circumstances.

Public-sector and grant routes

If the occupier is a public-sector body, the funding picture is different. Salix Finance provides government-backed funding for energy-efficiency and decarbonisation projects across the public estate, including schools, NHS trusts, universities and local authorities. Where an occupier qualifies, Salix can fund or part-fund solar in a way that private commercial owners cannot access.

For private commercial property, be honest with yourself: there is no broad cash grant. The value comes from the tax reliefs above, from avoided electricity cost, and from the effect solar has on the asset itself under MEES. Anyone promising a general commercial solar grant is usually describing finance, not free money. Read capital allowances and funding for owners for how owners actually fund these schemes.

Funding without capex

Preserving cash is often the deciding factor, and there are three well-established routes that put solar on the roof without a capital outlay.

• Asset finance. A loan or lease spreads the cost over the life of the system, with repayments frequently set below the value of the energy saved so the project is cash-positive from month one. Ownership, and the capital allowances, usually sit with you.
• Power Purchase Agreement (PPA). A third party funds, owns and maintains the system and sells you the power at an agreed rate below grid price. You take no capital risk, but you forgo the tax reliefs and the full generation value, and you sign a long-term supply commitment. This can also solve the split incentive in a let building.
• Sell-the-roof (roof lease). You lease the roof space to an operator who installs and runs the array. You take rent or discounted power and none of the capital burden, at the cost of ceding control of the roof for the term.

Each route trades capital for a different mix of ownership, control and return. The right answer depends on your tax position, your hold period and whether the building is owner-occupied or let. Compare the options in commercial solar finance options, and for landlords weigh the lease structures directly in roof lease versus PPA versus licence. When you are ready to model your own numbers, request a quote and we will build the funding case around your accounting year and hold plan.