Sustainability business loans: UK incentives and tax reliefs to consider for solar PV and energy‑efficiency projects

Summary (TL;DR): When financing commercial solar PV or energy‑efficiency projects in the UK, the key incentives and tax considerations to check are: capital allowances (plant & machinery and the Annual Investment Allowance), VAT treatment and possible recovery, business rates reliefs, export income via the Smart Export Guarantee (SEG), targeted grants and public schemes, and lender-specific green finance incentives. These measures affect cashflow, tax timing and the choice of finance product — so verify the latest HMRC, Ofgem and grant rules and consult a tax adviser. For a quick match to specialist lenders and brokers, Get Quote Now.

Not advice: UK Business Loans is an introducer that connects businesses with lenders and brokers. This page is for information only and is not regulated financial or tax advice. Consult an accountant or tax advisor for tailored guidance. Submitting an enquiry is not an application — it simply allows us to match your business to suitable lenders and brokers for a no‑obligation quote.

Why incentives matter when choosing finance

Incentives and tax reliefs change the project cashflow, reduce the required borrowing and can alter which finance product is optimal. Lenders underwrite on cashflow and security; if tax reliefs or export income materially reduce the net cost, you may borrow less or secure better pricing. However, lenders generally take conservative views on future income (e.g., SEG receipts) and will want evidence of eligibility and reliable installer certification.

Key financial impacts to consider:

• Immediate tax relief (capital allowances) improves after‑tax payback and can speed up cash tax benefits.
• VAT recovery reduces effective upfront cost if the business is VAT‑registered and the use is taxable.
• Confirmed grants lower the capital requirement; conditional grants may not be acceptable until formally awarded.
• SEG/export income can support debt service but is typically stress‑tested by lenders.

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Capital allowances & business tax reliefs

Commercial solar PV, battery storage and many energy‑efficiency installations are commonly treated as plant & machinery for capital allowance purposes, meaning businesses may claim tax relief on qualifying expenditure.

What to check:

• Annual Investment Allowance (AIA): allows immediate relief for qualifying plant & machinery up to the prevailing AIA limit — verify the current limit on GOV.UK.
• Writing down allowances and pooled treatment: some items may join a special rate pool or main pool affecting timing of relief.
• Ownership matters: only the purchaser (not necessarily the lessee) can claim certain allowances — structure (purchase vs lease) impacts tax treatment.
• Temporary measures: past policies (e.g., super‑deduction) have been time‑limited — always confirm current rules with HMRC guidance.

Practical tip for accountants: document itemised capex, dates of expenditure and contractual ownership to support claims. For HMRC guidance see: https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual

VAT treatment

VAT can be a significant cashflow item on installation costs. Recovery depends on whether the business is VAT‑registered and whether the energy generated is used for taxable business activities.

• Business premises: VAT-registered companies that use energy for taxable supplies can typically reclaim VAT on installation costs, subject to normal partial‑exemption rules.
• Mixed use and resale: if the business supplies electricity to third parties, special VAT considerations can apply.
• Residential vs commercial: installations on domestic properties often have different VAT rules and reduced rates for certain circumstances — check HMRC VAT notices.

If in doubt, obtain a VAT opinion from a tax adviser and check HMRC guidance: https://www.gov.uk/guidance/vat-notice-701-works-contracts

Business rates & local reliefs

Renewable installations can affect rateable values. In some cases local councils or central policy offer business rates relief or exemptions for green equipment, but rules vary by locality and asset type.

What to do:

• Contact the local council or Valuation Office Agency (VOA) for guidance on rateable value impacts.
• Check whether reliefs or incentives are time‑limited or conditional on type/size of installation.

Export income: Smart Export Guarantee (SEG) and Feed‑in Tariff (FiT)

The Feed‑in Tariff (FiT) closed to new entrants in 2019; existing FiT contracts continue under their terms. New small‑scale projects rely on the Smart Export Guarantee (SEG), where licensed electricity suppliers pay for exported generation under agreed tariffs.

Important points for finance modelling:

• SEG rates vary by supplier and contract; treat export income conservatively in lending models.
• Lenders typically require an executed SEG contract or credible evidence that a supplier will accept exported power.
• Assess generation risk (performance, degradation, downtime) and how that affects revenue streams.

Reference: Ofgem Smart Export Guarantee information — https://www.ofgem.gov.uk/

Grants, public funds and specialist schemes

Several sources of grant funding exist, often targeted, regional or sector specific:

• Salix and other public sector funds for schools, hospitals and public bodies (public‑sector specific).
• Local authority or Devolved Administration grants for business decarbonisation projects.
• Innovate UK, UKSPF, and occasional BEIS/central government competitions for innovation or larger programmes.

Notes:

• Grants are often time‑limited, require match funding and strict procurement/reporting conditions.
• Confirm whether grant income must be deducted from the project cost when seeking finance; some lenders accept gross costs but require evidence of award.

Use the Government grant finder: https://www.gov.uk/business-finance-support

Green finance products & lender considerations

Many lenders now offer green business loans, sustainability‑linked facilities or preferential pricing for projects that demonstrably reduce emissions. Lenders may require:

• Installer MCS (or equivalent) accreditation and performance guarantees.
• Energy Performance Certificates or technical energy models and O&M contracts.
• Conservative treatment of SEG/grant income in stress tests and sometimes retention of residual proceeds by the lender until performance evidence provided.

When you contact lenders, ask whether they accept capital allowances and confirmed grants in underwriting, and how they treat VAT recovery in loan sizing.

sustainability business loans — if you want lenders who specialise in this sector, Get Quote Now to be matched with the most appropriate brokers and lenders.

Practical pre‑finance checklist for accountants and businesses

Before seeking finance, prepare the information lenders expect:

• Detailed capex & opex model showing installation cost, expected generation (kWh), SEG assumptions, maintenance costs and degradation.
• Tax position: VAT registration status, planned ownership structure and confirmation of likely capital allowance treatment from tax adviser.
• Installer documentation: multiple quotes, MCS accreditation, performance guarantees and O&M proposals.
• Grant documentation: terms, timelines and confirmation of award (if applicable).
• Asset ownership decision: who will own the asset (purchaser vs funder) as this influences allowances and VAT recovery.

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How incentives influence finance product choice

Common options and when they fit:

• Term loan or asset finance (purchase): retains ownership, allows capital allowances and VAT recovery (if eligible).
• Hire purchase / finance lease: spreads cost, lenders take security; review when ownership transfers for tax claims.
• Operating lease / third‑party ownership: lowers upfront cost and shifts maintenance responsibility, but tax benefits accrue to the lessor.
• Green loans or sustainability‑linked facilities: may offer better terms for verified environmental benefits.

Choose the structure after confirming tax adviser position and lender acceptance of incentives in underwriting.

Compliance, disclaimers & next steps

Important compliance note: UK Business Loans is an introducer that matches businesses with lenders and brokers. We are not a lender and do not give regulated financial or tax advice. For tailored tax or investment decisions, consult an accountant, tax advisor or a finance professional. Verify incentive eligibility with HMRC, Ofgem and the relevant grant administrator before relying on prospective income or reliefs.

Ads or financial promotions related to lending may require additional disclosures; check advertising and financial promotion rules before running campaigns.

Frequently asked questions

Are there capital allowances for solar PV?

Often yes — solar PV and associated plant are usually plant & machinery for capital allowances. The exact treatment depends on ownership, timing and HMRC rules. Consult HMRC guidance and a tax adviser.

Can VAT be reclaimed on solar installations?

It depends on the business’s VAT status and how the energy is used. VAT recovery is common for VAT‑registered businesses using energy in taxable activities; complexities arise with mixed use or third‑party supplies. Seek VAT advice and check HMRC notices.

Is the Feed‑in Tariff still available?

No — FiT closed to new applicants in 2019. Existing contracts persist. New projects typically rely on SEG export payments.

Will grants always reduce borrowing?

Grants reduce the amount needed in principle, but lenders usually require confirmed award documentation and may take time‑limited or conditional grants less favourably until formalised.

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1. How do capital allowances affect the amount I should borrow for a solar PV project?
– Claiming capital allowances (including the AIA where applicable) can accelerate tax relief and reduce net project cost, which can lower the amount you need to borrow — but confirm eligibility with HMRC or your tax adviser.

2. Can my business reclaim VAT on a commercial solar PV installation?
– VAT recovery is possible for VAT‑registered businesses using the energy for taxable supplies, but rules vary for mixed use, resale and domestic sites so get a VAT opinion or check HMRC guidance.

3. Will SEG export income be counted by lenders when assessing loan affordability?
– Lenders may consider SEG export income, but they typically stress‑test it conservatively and often require an executed SEG contract or credible evidence before including it in underwriting.

4. Do grants and public funds always reduce the loan I can get?
– Grants can reduce required borrowing in principle, but lenders usually need confirmed award documentation and may exclude conditional or unconfirmed grants until formally awarded.

5. Which finance product is best for buying solar PV — term loan, asset finance, lease or green loan?
– The optimal product depends on ownership and tax objectives: purchase via term or asset finance can allow capital allowances and VAT recovery, leases shift tax benefits to the lessor, and green loans may offer preferential pricing for verified projects.

6. What documentation will lenders typically ask for on sustainability projects?
– Expect to provide itemised capex and opex models (generation kWh, SEG assumptions), installer quotes and MCS accreditation, O&M proposals, ownership arrangements, and any grant or SEG contracts.

7. Will lenders accept capital allowances and VAT recovery assumptions when sizing a loan?
– Some lenders accept these incentives in loan sizing if evidenced, but many will apply conservative assumptions and require tax-adviser confirmation or HMRC guidance before relying on them.

8. Will submitting an enquiry through UK Business Loans affect my credit score?
– No — submitting an enquiry is not a credit application and will not affect your credit score; lenders may perform checks only if you proceed with an application.

9. How quickly will UK Business Loans match me with lenders and brokers for a sustainability loan?
– Typically you’ll receive responses from matched lenders or brokers within hours after submitting the short, free enquiry form.

10. Are the lenders and brokers UK Business Loans connects me to regulated and experienced?
– Yes — UK Business Loans works with trusted, FCA‑regulated brokers and lenders who specialise in business finance and many have experience in sustainability and renewables projects.