Solar does not change the corporation tax rate you pay. It changes your taxable profit, and so the size and timing of your bill. The relief is real. However, the cash only comes back when your tax falls due. For many companies that is over a year after you pay for the system. A business case that treats the relief as day-one cash overstates the payback.
This guide covers what a finance director needs to model, since each part changes the result. That means the rate bands, the allowances that apply to solar, and the payment dates.
Which rate applies
GOV.UK gives the current Corporation Tax rates as follows:
| Taxable profit | Rate |
|---|---|
| £50,000 or less | 19% (small profits rate) |
| Between £50,000 and £250,000 | Main rate reduced by marginal relief |
| Over £250,000 | 25% (main rate) |
Both limits shrink with the number of associated companies. They also shrink when an accounting period is shorter than 12 months. HMRC’s marginal relief guidance explains the rule and links to a calculator.
The bands matter because relief can move your whole remaining profit into a lower band. A large deduction does not just reduce the profit taxed at 25%. It can also reduce the rate on what is left.
Which allowances apply to solar
Solar sits in a different category from most equipment. Sales material often gets this wrong, so check each point.
- HMRC’s Capital Allowances Manual says that all capital expenditure on the provision of solar panels is specifically designated as special rate, with effect from 1 April 2012 for corporation tax.
- The Annual Investment Allowance (AIA) is £1 million for each accounting period, and it applies to most plant and machinery. Companies controlled by the same person share one AIA between them.
- Spend above the AIA can attract a 50% first-year allowance for companies. HMRC’s manual gives an example of a special rate asset where AIA covers the first £1 million and a 50% first-year allowance covers the rest. Full expensing at 100% is for main rate assets, which solar is not.
- Whatever is not relieved up front goes into a pool. GOV.UK lists solar panels among the items that attract only 6% a year in the special rate pool.
The 2026 changes do not help solar. A new 40% first-year allowance applies from 1 January 2026, but GOV.UK says it excludes special rate expenditure. The main pool rate fell from 18% to 14% from 1 April 2026, yet the special rate pool is untouched. Our article on why solar does not qualify for full expensing covers that mix-up.
In practice, a solar system that fits inside your unused AIA gets a 100% deduction in the year of purchase. Above the AIA, relief slows down, because only part gets a first-year claim. If other equipment has already used the AIA, your solar relief may be much slower than a sales quote implies.
When the cash arrives
The tax saving appears when the tax is paid, not when the system is bought. Timing differs by company size, while the rule is the same.
- Profits up to £1.5 million. You must pay 9 months and 1 day after the end of your accounting period. A system bought early in a year can mean waiting well over a year for the lower bill.
- Profits above £1.5 million. Companies in the £1.5 million to £20 million range pay in instalments. For a 12-month period, four equal instalments fall due in months 7, 10, 13 and 16. If you update your profit estimate to reflect the allowance, the early instalments can fall, so some of the benefit lands sooner.
- Profits above £20 million. A faster schedule applies. See GOV.UK’s guidance for very large companies.
For accounting periods starting on or after 1 April 2023, the thresholds are divided by the number of associated companies plus one. A group may therefore pay by instalments on profits far below £1.5 million.
An illustrative example
This example uses assumed figures to show the method, since real results depend on your own profit. It is not a forecast. Assume a company has £220,000 of taxable profit before solar. It then buys a £180,000 rooftop system, all covered by unused AIA.
- Before solar: profit of £220,000 sits in the marginal band. Tax is close to £54,500. You can check this with HMRC’s calculator.
- After the deduction: profit falls to £40,000, below the £50,000 limit. The small profits rate of 19% applies to all of it, so tax is £7,600.
- Tax saving in that year: about £47,000 against £180,000 spent.
Two things come out of this. The saving is larger than 25% of the spend, because the deduction also moved the company into a lower band. Also, a company below the £1.5 million threshold sees the cash nine months and a day after the year end. Add the energy savings and allow for that delay, and the payback changes.
The jump only happens when profit sits in the right place. Otherwise the saving is smaller, for example when profit is far above the bands. A company with £400,000 of profit would save closer to 25% of the spend.
Questions to ask before you commit
- Is this year’s AIA already used by other capital spending in the group?
- Does the profit after relief cross £50,000 or £250,000?
- Are you on the standard payment date or on instalments, and is the profit estimate being updated?
- Do associated companies share the AIA and the rate limits?
- Would a PPA or lease change the tax picture? See PPA, outright purchase or lease and VAT on commercial solar installations.
Get the model right
Because these facts depend on your accounting year, your capital plans and your group structure. A supplier’s per-kWp quote has none of that. Our energy and ROI modelling service builds the after-tax payback and the timing of the cash into the business case. This is general information, not tax advice, so confirm the treatment with your own accountant.
Tax timing changes the cash case, so model it before you choose how to pay. Our energy and ROI modelling includes allowances and payment dates. PPA and financing advice compares buying with leasing or a PPA, while portfolio optimisation spreads spending across years for a multi-site estate. A feasibility study confirms the site works first.