Solar finance glossary

The asset-finance and tax terms that come up when funding commercial solar, in plain English.

Annual Investment Allowance (AIA)

A capital allowance letting a business deduct 100% of qualifying plant-and-machinery spend from taxable profit in the year of purchase, up to £1m a year. Solar PV qualifies.

50% First-Year Allowance (FYA)

A first-year allowance for special-rate plant — including solar — letting a company deduct 50% of the cost in year one, with 6% writing-down allowances on the balance. Now permanent.

Full expensing

100% first-year relief for MAIN-rate plant and machinery. Solar is special-rate, so it does NOT qualify for full expensing — it uses AIA or the 50% FYA instead.

Special-rate expenditure

Plant classed as integral features or long-life assets (solar PV is one). It attracts the 50% FYA and 6% writing-down allowances rather than full expensing.

Writing-down allowance (WDA)

The annual percentage of an asset’s remaining value you can deduct after any first-year allowance. Special-rate assets like solar use 6%.

Hire purchase (HP)

Finance where you pay in instalments and own the asset at the end. HMRC treats it as a purchase, so you claim the capital allowances on the full cost from day one.

Finance lease

A lease where the lessor owns the asset (and usually claims the allowances, pricing the benefit into lower rentals) while it sits on the lessee’s balance sheet.

Operating lease

A rental arrangement with the lowest monthly cost; rentals are a deductible expense and there are no allowances for the lessee. Mostly on balance sheet from 2026.

Long-funding lease

A finance lease meeting statutory tests where the lessee, not the lessor, may claim the capital allowances.

Equipment loan

A business loan used to buy equipment outright, so you own the asset and claim the allowances from day one. Often unsecured against the asset.

Sale-and-leaseback

Selling an asset you own to a funder for a lump sum and leasing it back, releasing capital while keeping the asset in use.

Power Purchase Agreement (PPA)

A contract where a third party owns the solar system and sells you the electricity, typically for 15–25 years. The funder keeps the allowances and the export income.

Smart Export Guarantee (SEG)

A scheme under which licensed suppliers pay the system owner for electricity exported to the grid. The income belongs to whoever owns the system.

Total cost of credit

The sum of all finance repayments minus the amount financed — the true cost of borrowing, used to compare finance against paying cash.

Covenant

A lender’s assessment of a borrower’s financial strength (accounts, trading history, balance sheet). Stronger covenants attract finer rates.

Residual value

The estimated worth of an asset at the end of a lease term, which the lessor carries on an operating lease.

FRS 102

The main UK GAAP accounting standard. Its revised lease rules (periods beginning on/after 1 Jan 2026) bring most leases on balance sheet for lessees.

IFRS 16

The international lease accounting standard that already requires most leases on the lessee’s balance sheet as a right-of-use asset and liability.

Drawdown

The release of finance funds, usually on commissioning of the solar system so you don’t pay for an asset that isn’t yet generating.

Peppercorn / secondary rental

A nominal rental to keep using a leased system after the primary term ends.

Growth Guarantee Scheme

A British Business Bank scheme guaranteeing 70% of qualifying SME lending, helping lenders fund renewable projects.

Finance & Leasing Association (FLA)

The UK trade body for asset finance providers; membership is a mark of an established, reputable lender.

Self-consumption

The share of generated solar electricity used on site rather than exported. Higher self-consumption improves the economics.

MEES

Minimum Energy Efficiency Standards for let property. Solar can lift a building’s EPC rating and help with MEES compliance.

For the routes themselves, see our finance options, the capital allowances guide, or all our solar finance guides.