Is solar panels
tax deductible?

Partly. Solar panels on business premises are plant and machinery and qualify for capital allowances as special rate expenditure (CAA 2001 s104A), usually with the Annual Investment Allowance. Panels on your own home are personal, and panels added to a residential let are an improvement, not an allowable expense (GOV.UK).

Solar panels are treated very differently depending on where they go. On a shop, workshop or farm building, they are plant and machinery with capital allowances. On your home, they are a personal purchase. On a residential let, they are an improvement to the property that rental income cannot absorb.

Is solar panels tax deductible?

The HMRC rule

Claim equipment you keep as an allowable expense on the cash basis, or as capital allowances on traditional accounting. The rule comes from Claim capital allowances, Capital allowances: what you can claim on, Work out your rental income when you let property.

The Capital Allowances Act lists expenditure on the provision of solar panels as special rate expenditure (CAA 2001 s104A). Special rate expenditure qualifies for the Annual Investment Allowance, with any balance written down at 6% a year (capital allowances). For landlords, enhancements or improvements to a property are capital expenditure and not deductible from rental income, and capital allowances are not available for items in a dwelling other than in communal areas of buildings with multiple units (landlords; capital allowances).

When you can claim it

• Capital allowances on solar panels at business premises, for the business share.
• The Annual Investment Allowance on panels, which can give full relief in year one.
• Writing down allowances at 6% a year on any balance in the special rate pool.
• Running and maintenance costs of panels at business premises.

When you cannot

• Solar panels on your own home as a business expense.
• Solar panels on a residential let as a deduction from rental income.
• The full cost as an ordinary running expense on traditional accounting.
• Income from exporting electricity as a way of making the cost deductible.

What to claim instead

Although solar panels on a residential let are not deductible, they may reduce the tenant's energy bills, make the property easier to let and count towards its value. Energy-saving materials, including solar panels, installed in residential property are zero-rated for VAT until 31 March 2027, which reduces their cost.

How to decide if you can claim it

1. Was it for the business? A cost is only allowable if you incur it wholly and exclusively for the business. If it also serves a personal purpose that cannot be separated, such as clothing that keeps you warm or a meal that keeps you going, HMRC disallows it.
2. Is part of it personal? Where a cost has a business part you can identify, such as the business calls on a phone bill or the business miles in a car, you claim that part and leave the rest out, on a reasonable basis you can explain.
3. Is it a running cost or something you keep? It is something you buy to keep. On traditional accounting that means capital allowances, where the item qualifies, rather than an expense. On the cash basis most equipment is an ordinary expense, but cars, land and buildings never are.
4. Is there a specific rule? For solar panels, the deciding rule is equipment you keep, such as a computer: claim equipment you keep as an allowable expense on the cash basis, or as capital allowances on traditional accounting.

Worked example: panels on a farm shop

A farm shop owner installs £14,000 of solar panels on the shop roof, used wholly for the business. On traditional accounting, the Annual Investment Allowance covers the full £14,000 in the year of purchase. Had she installed the same panels on the farmhouse she lives in, they would be a personal cost.

Special rate expenditure

Solar panels are designated special rate expenditure by law, alongside integral features such as electrical and heating systems. That matters only after the Annual Investment Allowance: any cost not covered by it goes in the special rate pool, written down at 6% a year rather than the main rate. For most small businesses, the £1 million allowance covers the panels in full.

Panels on the cash basis

On the cash basis, equipment fixed to a building can be deductible as an expense unless it forms part of the building itself, and only if it is a depreciating asset that loses most of its value within 20 years. Whether roof panels meet that test depends on the installation. If the amount is significant, confirm the treatment before you claim.

Landlords and residential lets

Adding solar panels to a let house is an improvement, not a repair, so it is not deductible from rental income. Landlords also cannot claim capital allowances on plant in a dwelling, except in communal areas of buildings with multiple units. The cost may count towards the property's base cost for Capital Gains Tax when you sell.

Income from panels

If a business exports electricity to the grid, the payments it receives are business income. If panels on your home export electricity, payments for surplus domestic generation are usually not taxable as trading income. The tax treatment of the income does not change the treatment of the panels' cost.

VAT on solar panels

Solar panels installed in residential accommodation are zero-rated for VAT as energy-saving materials until 31 March 2027. Panels on business premises carry VAT at the standard rate, which a VAT-registered business can reclaim. The Income Tax relief is on the cost net of any VAT reclaimed.

If you are a landlord

A landlord cannot deduct solar panels added to a residential let, because they improve the property, and cannot claim capital allowances on plant in a dwelling outside communal areas (GOV.UK). Keep the invoice with the property's records for Capital Gains Tax.

Where it goes on your return and in MTD

On the self-employment pages of your return, the claimable part of solar panels belongs in rent, rates, power and insurance costs (SA103F box 21). The same category is used in Making Tax Digital quarterly updates, so recording it in the right place once keeps both returns consistent.

A landlord cannot deduct it from rental income either, so it stays out of the property expense boxes.

If your turnover was under £90,000, you can use the short self-employment pages (SA103S), which ask for a single figure for total allowable expenses rather than a box-by-box breakdown, and the full pages let you give just a total in box 31 too. The category still matters for your own records and for Making Tax Digital, where each quarterly update uses the same categories unless you choose to send one consolidated figure.

The accounting basis changes when a cost counts. On the cash basis, the default for sole traders since 2024/25, it counts when you pay it; on traditional accounting, when you incur it, with things you keep claimed through capital allowances.

How much an allowable cost saves

An allowable expense does not come back to you in full: it reduces your profit, so it saves tax at your marginal rate. For a sole trader in England, Wales or Northern Ireland that is 26p in the pound at the basic rate (20% Income Tax plus 6% Class 4 National Insurance) and 42p at the higher rate. The sole trader tax calculator works out the figure for your own profit.

What £1,000 of allowable expense saves a sole trader in 2026/27

• Basic rate (20% + 6%)£260
• Higher rate (40% + 2%)£420
• Additional rate (45% + 2%)£470
• Allowance taper band (60% + 2%)£620

Records to keep

Keep the installation invoice, the date the panels were brought into use, and, for business premises, how much of the building is used for the business. For a residential let, keep the invoice with the property's purchase and improvement records.

If Making Tax Digital for Income Tax applies to you (qualifying income over £50,000 from April 2026, £30,000 from April 2027 and £20,000 from April 2028), the records must be digital, and each quarter's costs go into a quarterly update. Check your date with the MTD requirement checker.

Common mistakes

• Claiming solar panels on your home as a business expense.
• Deducting panels on a residential let from rental income.
• Putting the balance in the main rate pool instead of the special rate pool.

Related expenses

This item sits in the rent, rates, power and insurance costs category, alongside business rates, council Tax, garden office, home and landlord insurance, mortgage interest, rent, service charges and stamp Duty. The A to Z of expenses answers the same question for every other cost.

If you record your costs in TapTax, each one lands in the HMRC category it belongs to, with its receipt attached, so your quarterly updates and year-end return use the same figures.