A cleantech business building its first production facility could easily spend £2 million on plant, equipment, and building works before generating a pound of revenue. Most founders know about R&D tax relief, and we covered the merged scheme in detail in our earlier article. This article focuses on the other tax reliefs that cleantech businesses can claim: capital allowances, business rates exemptions, Patent Box, and the standalone R&D Allowance for capital spend. For a business investing in production equipment, the combined value of these reliefs can exceed the R&D claim.
Each operates under different rules with different qualifying criteria, and the combination determines the total relief available. Misclassifying a single asset or misallocating costs between schemes can mean paying more tax than necessary, or losing one relief entirely.
Capital allowances: the special rate trap for cleantech
Full expensing at 100% is the headline capital allowances rate that most business owners hear about. It applies permanently to main rate plant and machinery with no annual limit. Lab equipment, IT systems, general manufacturing tools, and office fit-outs all qualify at the main rate.
Cleantech assets are different. Solar panels, wind turbines, integral features such as heating and ventilation systems, and long-life assets with an expected useful life of 25 years or more are all classified as special rate. Special rate assets do not qualify for full expensing.
At scale, this distinction determines how much relief arrives in year one versus over a decade. A business installing £3 million of specialist equipment at a new facility needs to know which assets fall into which pool before committing capital. The first £1 million of special rate spend can be covered by the Annual Investment Allowance (AIA) at 100%. Above that, partial expensing provides a 50% first-year allowance on the remaining balance. The remaining balance enters the special rate pool at 6% per year.
In practical terms, a £3 million special rate equipment purchase would receive 100% relief on the first £1 million through AIA, 50% relief on the remaining £2 million in year one through partial expensing, and 6% per year on the unrelieved balance after that. Year one relief totals £2 million, not the full £3 million that a main rate asset would attract under full expensing.
Main rate assets still get 100%
Not everything in a cleantech facility falls into the special rate pool. General plant, computer hardware, testing instruments, and standard manufacturing equipment qualify at the main rate and receive full expensing at 100% with no cap. The classification of each asset determines the relief available, and getting it right at the point of purchase avoids leaving money in the system.
As of April 2026, the main rate writing down allowance has reduced from 18% to 14%. Assets not covered by full expensing or AIA now attract a lower annual deduction.
A new permanent 40% first-year allowance, introduced in January 2026, extends accelerated relief to leased assets and unincorporated businesses. These were previously excluded from full expensing. For cleantech businesses that lease out equipment or operate as partnerships, this new allowance fills a gap that full expensing could not reach. Second-hand assets, cars, and overseas leasing are excluded.
The R&D allowance for capital spend
The R&D expenditure credit covered in our earlier article applies to revenue costs: staff, subcontractors, consumables, software, and utilities. Capital expenditure on plant and machinery used in R&D does not qualify for that credit.
The Research and Development Allowance provides a 100% first-year deduction for capital expenditure on assets used directly in qualifying R&D. This works through the capital allowances system, not the R&D relief scheme. A company building bespoke prototype equipment or constructing a pilot production line can claim the full cost in year one.
A business can claim the expenditure credit on qualifying revenue costs and the R&D Allowance on capital costs in the same period. The two operate under different legislative frameworks, so there is no double-counting issue, but careful separation of revenue and capital spend is needed to claim both correctly.
Business rates exemption for on-site renewables
Cleantech businesses installing renewable energy generation or storage at their own premises can benefit from a business rates exemption that runs until March 2035 in England. Qualifying plant and machinery covers on-site renewable energy generation, energy storage, and electric vehicle charging infrastructure.
Solar panels on the roof of a production facility, battery storage systems, and on-site wind turbines all qualify. Removing these assets from the business rates valuation reduces the annual rates bill for the property. For a manufacturing business with substantial roof-mounted solar and battery storage, the annual saving can run into thousands of pounds.
This relief is automatic in most cases, but depends on the local rating authority correctly identifying the qualifying plant. Businesses should confirm that their valuation office assessment reflects the exemption, particularly after installing new generation or storage equipment.
Patent Box: 10% corporation tax on qualifying IP profits
Companies can apply a 10% corporation tax rate to profits earned from patented inventions through Patent Box. Against the main rate of 25%, the 15-percentage-point reduction matters for any business generating revenue from qualifying intellectual property.
Around 1,600 companies claim Patent Box in a typical year, compared with more than 65,000 R&D claims. The uptake suggests many eligible companies are not claiming it. Cleantech businesses developing patented recycling processes, novel chemical processes for synthetic fuels, proprietary battery technology, or unique software algorithms with patent protection may all qualify.
Patent Box applies from the point a patent is granted, not from the point of application. Companies that have patents pending should plan for the relief and ensure their accounting can isolate profits attributable to the patented technology once granted. Identifying the proportion of total profits derived from qualifying IP is not always simple for businesses with mixed revenue streams.
When Patent Box stacks with R&D relief
A company can claim R&D tax relief on the costs of developing an invention and subsequently claim Patent Box on the profits that invention generates. R&D relief reduces the tax burden during development. Once commercialisation begins and revenue flows, Patent Box brings the effective corporation tax rate on qualifying profits down to 10%.
Zero-emission vehicles and charging infrastructure
Companies purchasing zero-emission cars can claim a 100% first-year allowance, meaning the full cost of an electric vehicle is deductible against profits in the year of purchase. The same 100% first-year allowance applies to new electric vehicle charging points installed at business premises. Both reliefs are available until 31 March 2027.
For cleantech businesses running fleet vehicles or sending staff to client sites, this reduces the effective cost of the transition to electric.
How cleantech tax reliefs interact
The interaction between different tax reliefs is where most value is lost. A business cannot claim both AIA and full expensing on the same asset. Grant-funded capital expenditure reduces the capital allowances claim pound-for-pound. The R&D Allowance covers capital spend while the R&D expenditure credit covers revenue spend, and mixing the two incorrectly leads to rejected claims or missed relief.
A cleantech company receiving a £500,000 Innovate UK grant towards a new production line needs to reduce its capital allowances claim by the grant amount. Grant-funded portions of capital cost do not attract allowances. Failing to adjust for this creates a compliance risk when HMRC reviews the claim.
Modelling the optimal combination before the start of a financial year is worth the accounting cost. The right structure depends on the company’s tax position, the mix of main rate and special rate assets, whether any spend qualifies for the R&D Allowance, and whether grant funding is involved. An accountant who understands all four variables can ensure the business claims every pound of available relief without triggering a compliance issue.
How Wilson Partners can help
Before committing capital to new plant, equipment, or facilities, it is worth modelling the relief available. The difference between the right and wrong asset classification on a seven-figure investment can reach six figures in lost tax benefit. Our team advises cleantech and circular economy businesses on capital allowances, Patent Box, business rates exemptions, and how these interact with R&D claims and grant funding. Request a capital relief review.
Frequently asked questions
Do solar panels qualify for full expensing at 100%?
No. Solar panels are classified as special rate assets. They qualify for AIA at 100% on the first £1 million of total spend. Above the AIA limit, partial expensing provides a 50% first-year allowance. The remaining balance enters the special rate pool at a 6% writing down allowance per year.
Can I claim the R&D Allowance and the R&D expenditure credit at the same time?
Yes. The R&D Allowance covers capital expenditure on assets used in R&D, while the expenditure credit covers revenue costs such as staff, subcontractors, and consumables. The two operate under different parts of the tax code and can be claimed in the same accounting period for different types of qualifying spend.
What is the Patent Box rate and who can claim it?
Patent Box applies a 10% corporation tax rate to profits derived from patented inventions. Any UK company that holds a qualifying patent granted by the UK Intellectual Property Office or the European Patent Office can claim. The company must have undertaken development activity in relation to the patent.
Does grant funding affect my capital allowances claim?
Yes. Grant-funded capital expenditure reduces the amount eligible for capital allowances on a pound-for-pound basis. If a £1 million asset is partly funded by a £300,000 grant, the capital allowances claim is based on the net £700,000 the business spent. This applies to AIA, full expensing, partial expensing, and writing down allowances.
