Solar Energy Tax Credits For Businesses: Understanding Your Benefits with Solar Panels

Solar panels are excellent ways to reduce energy bills and generate clean electricity. In previous posts, we revealed the benefits and grants available to homeowners—but what about businesses? 

Company owners can take advantage of renewable energy tax credits, which enable them to save money while also promoting their commitment to sustainability. 

Discover how much money you can save and the benefits of installing commercial solar panels here. 

What are commercial solar panels?

Businesses use more electricity than the average residential home, so standard solar panels won’t generate enough power. Commercial panels are larger and often use more cells to ensure they can power operations. 

However, the average installation cost for SMEs is between £16,000 and £60,000, while larger companies that rely on electricity for industrial operations could spend over £100,000. 

While the outright costs can be significant, businesses can also take advantage of long-term savings and the chance to break even after a few years. 

Solar panel tax rebates 

The UK is taking a proactive approach to saving the planet, and the Net Zero Strategy means businesses can benefit from tax rebates when they install solar panels. Companies can take advantage of rebates, enabling them to reduce their taxes after installing the panels. 

Annual Investment Allowance 

Companies in the UK can take advantage of the Annual Investment Allowance (AIA), which enables them to deduct the total cost of eligible investments from their Corporation Tax bill. 

If you install solar panels, you can deduct them from your tax bill, saving money on the entire cost. 

However, the AIA covers assets such as machinery, business vehicles and equipment, so if you’ve already claimed £1 million, you won’t be able to deduct the total cost of your solar panels. 

Instead, you can use the First Year Allowance. 

The First Year Allowance 

The effects of COVID-19 left many businesses struggling, resulting in the government implementing initiatives to help companies grow. The 50% First Year Allowance was initially meant to end in 2023 but is now available until March 2026. 

The allowance enables companies to deduct up to 50% of their solar panel installation from the Corporation Tax bill, resulting in significant savings. After the initial 50% deduction, businesses can deduct up to 6% in the following years. 

Eligibility 

If you have a business and pay Corporation Tax, you can deduct the solar panel installation costs using the 50% First Year Allowance scheme. Whether you own a farm, factory or any other business, you can benefit from solar panel installation and save money. 

The benefits of commercial solar panels 

Commercial solar panels offer businesses a range of benefits. Yes, the installation is a significant investment, but many companies find the long-term savings outweigh their initial spending. 

Factor in the 50% First Year Allowance, and businesses can reap the rewards of clean energy. 

Yearly savings 

Businesses rely on electricity to remain operational, and dependence on the grid can result in high energy bills. Solar panels put businesses in an environment that can generate clean energy from the sun and export excess electricity to the grid. 

Installing solar panels could save thousands each year, with the average 25kW system reducing electricity bills by around £3,000 annually. 

Better energy production 

Standard solar panels are highly effective at producing energy for residential properties, but commercial panels use high-grade materials to ensure rapid energy production. 

Businesses can use monocrystalline panels, which are better at producing energy. They cost more to install, but the trade-off is that the panels produce consistent energy—even in low sunlight. 

Lower energy bills 

According to Utility Bidder, the average small company in the UK will spend up to £3,660 on utilities, while medium businesses can exceed £7,000. Larger companies have the highest costs, but their rates can also be more competitive. 

Installing solar panels enables you to save money on your electricity bills and reduces grid reliance. Over time, these savings can help you invest more money into your company. 

Earn income 

Let’s not forget that companies can also earn money on solar panel installation. Any electricity you don’t use can go back to the grid through the Smart Export Guarantee, which allows you to receive money. 

Residential properties can earn around £180 a year through the SEG, but businesses with larger solar panel systems could generate much higher incomes. 

Demonstrate your responsibility 

We all know that reliance on fossil fuels damages our planet, and people are more interested in sustainability today than ever. 

Businesses that install solar panels demonstrate their commitment to eco-friendly practices, which could result in more customers. 

Things to consider before installing commercial solar panels: 

• Initial Costs: Even if you claim the 50% deduction, you’ll still need to cover the excess solar panel installation costs. However, the long-term savings outweigh the initial expenses, with many businesses breaking even within a few years. 
• Consistency: While traditional solar panels offer reliable performance, they generate less power during the colder months, which means businesses might still rely on the grid. Installing monocrystalline offers more consistency, but they cost more outright. 
• Regulations: Depending on where your business is, you might need to seek planning permission to install solar panels. Checking with your local authority can help determine whether the panels are viable options. 
• Space Issues: Companies with extensive electricity needs will need large roof spaces to install solar panels. If your premises are in a densely populated urban area, you might be unable to install a large system. 

The bottom line 

Solar panels are a wise investment for businesses that want to reduce their electricity bills and promote sustainability. Whether you claim the 100% AIA or 50% First Year Allowance, these initiatives make solar energy an affordable solution for companies across the UK. 

If you want to transition to energy independence completely, combining solar panels with heat pumps can save thousands of pounds annually. Hometree is a specialist installer of renewable energy solutions, and we offer a reputable service. 

Please contact us today if you’d like to explore your solar panel installation options.