Solar finance glossary
The asset-finance and tax terms that come up when funding commercial solar, in plain English.
Quick answer — the six terms that decide the money: special-rate expenditure is what solar PV is for tax (section 104A(1)(g) CAA 2001), which is why it does not qualify for full expensing; the Annual Investment Allowance gives 100% relief on up to £1m of it a year; the 50% first-year allowance covers spend above that cap but is available to companies only; the total cost of credit is every repayment added up minus the amount financed, and is the only fair way to compare two facilities; a long funding lease is the trap in a sale-and-leaseback, because it changes who gets the allowances; and the Smart Export Guarantee pays whoever owns the system for exported units, which in a PPA is not you.
- 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. Full guide: capital allowances on solar panels
- 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 guide: how the 50% first-year allowance works for solar
- 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. Full guide: why solar does not qualify for full expensing
- Special-rate expenditure
- Plant that goes in the special-rate pool rather than the main pool — integral features, long-life assets, and solar panels, which are named separately at s.104A(1)(g) CAA 2001. It attracts the AIA or the 50% FYA and 6% writing-down allowances, never full expensing. Full guide: solar as special-rate expenditure
- 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%. Full guide: the full solar capital allowances guide
- 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. Full guide: solar hire purchase explained
- 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.