A renewable energy company faces a different tax question in each phase of a project, and the answer that matters most changes as the site moves from paper to concrete to export. During development the question is whether what you are spending is deductible now or locked up as capital. During construction it is which capital allowances pool each item lands in, and which allowance beats which. Once the meter is running the questions are ordinary company questions: corporation tax on generation income, VAT, and payroll for the people who keep the site working.
The figures that decide the numbers below are the £1,000,000 Annual Investment Allowance (AIA), the 40% first-year allowance available on new and unused main-rate plant from 1 January 2026, the main-rate writing-down allowance (WDA) falling from 18% to 14% from 1 April 2026 for corporation tax and 6 April 2026 for income tax, the 6% special rate pool, and corporation tax at 19% to 25% with an effective 26.5% in between. This page addresses the plant your company owns and uses in its own trade. Kit installed at a residential property is a separate regime and sits with our sister site, Property Tax Partners. If you install for others rather than generate, the Construction Industry Scheme (CIS) rules are the ones that govern your money, and they live at Trade Tax Specialists.
Phase one, development: is this spend deductible now or stuck as capital?
Everything a project spends before it generates anything falls on one side of a line. Revenue costs incurred in the seven years before trading begins are treated as incurred on the first day you start to trade, so a company that spends three years on feasibility, environmental surveys, legal work on the option agreements and financing costs carries those deductions forward and takes them in its first trading period. That is a timing rule, not a relief, and it only works if the company eventually starts the trade.
Capital costs behave differently. Land is never relievable. Planning consent, the cost of a grid connection agreement and payments for rights over neighbouring land buy an enduring advantage, so they are capital, and capital only gets relief where it falls into a pool. Spend that is neither a revenue expense nor qualifying plant sits on the balance sheet with no annual deduction at all until the asset or the company's interest in it is disposed of. That is the item that bites a small developer, because the sums involved at the consent and connection stage are large and the instinct is to assume something must relieve them.
That leaves three things to get right at the invoice stage. Record what each invoice buys, not just who issued it, because a single consultant's fee note can cover both sides of the line. Keep the pre-trading clock in mind, since the seven-year window runs backwards from the first day of trade. And if a project is abandoned before trading starts, the pre-trading rule never engages, so the costs of a dead site are not deductible in a company that never traded.
Phase two, construction: which allowance beats which?
Once you are buying and installing plant, the tax work is pooling. Turbines, inverters, transformers, control gear, monitoring equipment, storage batteries and the mounting systems that hold them are functional apparatus used in the trade, so they are plant and machinery. Site electrical distribution, lighting, water, heating and ventilation systems in the site buildings are integral features and go to the special rate pool. The shell of a substation building or control room is a structure, not plant.
That gives four possible treatments on a single construction account, and they are not equally valuable in 2026/27:
| Category | Relief | Year-one deduction on £100,000 |
|---|---|---|
| Main-rate plant, within the AIA limit | AIA, 100% (2026/27, limit £1,000,000) | £100,000 |
| New and unused main-rate plant, company | Full expensing, 100% (companies only) | £100,000 |
| New and unused main-rate plant, 40% first-year allowance route | 40% first-year allowance from 1 January 2026, balance to the main pool, written down at 14% from the following period | £40,000 |
| Special rate, no AIA left | 6% WDA (2026/27), or 50% first-year allowance on new and unused plant for companies | £6,000, or £50,000 on the first-year route |
| Structure or building | Structures and Buildings Allowance, 3% straight line (2026/27) | £3,000 |
Which allowance to point at which spend
The ordering rule that follows from that table is simple and it is worth applying deliberately. Point the AIA at special rate spend first, because that spend would otherwise crawl at 6%, and let the new main-rate plant take full expensing or the 40% first-year allowance, which the AIA is not needed for. Second-hand plant is the exception that catches people out: it qualifies for the AIA but not for full expensing and not for the 40% first-year allowance, so buying a refurbished transformer changes which relief you can point at it. Our consolidated capital allowances guide for 2026/27 works through the general rules, rates and pooling mechanics, including the business vehicle-charging position, and the full expensing page covers the companies-only route in detail. For the split between the shell and what is inside it, see integral features.
A worked example at 2026/27 rates
Saoirse runs a small generation company near Truro that owns a single site. Its accounting period ends 31 March 2027 and it has taxable profit of £260,000 before capital allowances. During the year it spends:
- £120,000 on new and unused inverters and control gear (main-rate plant)
- £40,000 on a second-hand transformer (main-rate plant, but not new, so no full expensing and no 40% first-year allowance)
- £30,000 on the electrical distribution and heating installation in the control building (special rate, integral features)
Total qualifying spend is £190,000, comfortably inside the £1,000,000 AIA limit for the 12-month period (2026/27). The company claims the AIA against the £30,000 of special rate spend and the £40,000 second-hand transformer, and takes full expensing at 100% on the £120,000 of new main-rate plant. Either route reaches the same place here: a £190,000 deduction in the year.
Taxable profit becomes £260,000 minus £190,000, which is £70,000. That sits between the £50,000 lower limit and the £250,000 upper limit, so marginal relief applies. Corporation tax at the main rate is 25% of £70,000, which is £17,500. Marginal relief is 3/200 of (£250,000 minus £70,000), which is 3/200 of £180,000, or £2,700. Corporation tax payable is £17,500 minus £2,700, which is £14,800.
Check it the other way: 19% on the first £50,000 is £9,500, and 26.5% on the next £20,000 is £5,300, giving £14,800. Without the allowances, profit of £260,000 exceeds the upper limit and the whole amount is taxed at 25%, which is £65,000. The allowances are worth £50,200 of tax in the year. The marginal relief page sets out the formula on its own.
Had the company used the 40% first-year allowance on the £120,000 instead of full expensing, the year-one deduction on that asset would be £48,000, with £72,000 going into the main pool and attracting a 14% writing-down allowance of £10,080 in the following period, not in year one. The remainder is not lost, it arrives at 14% a year, but it arrives slowly. Note also that if the company had been a sole trade rather than a company, full expensing would not have been available at all and the 100% route would have had to come entirely from the AIA.
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Phase three, operation: generation income, VAT and people
Once the site exports, the receipts are ordinary trading income of the company. Payments under a Renewables Obligation Certificate, a Contract for Difference or the Smart Export Guarantee are receipts of the trade and follow ordinary trading income treatment, with no separate rate and no separate computation. Corporation tax is 19% up to £50,000 of augmented profit, 25% above £250,000, and an effective 26.5% on the slice in between (2026/27), payable 9 months and 1 day after the period end.
Missing either of the next two costs real money. The first is associated companies. A developer that houses each site in its own special purpose vehicle under a common parent divides the £50,000 and £250,000 limits by the number of associated companies, so a parent with five trading SPVs commonly divides those limits six ways unless the parent is a passive holding company that can be disregarded, giving each company an £8,333 lower limit and a £41,667 upper limit. A project company earning £60,000 in that group pays at the main rate on all of it, where a standalone company earning the same would be at 19%.
The second is VAT. Registration is compulsory once taxable turnover exceeds £90,000 in any rolling 12 months, or is expected to in the next 30 days, but a company building a site normally registers voluntarily long before it generates anything so that it can recover input VAT on the construction spend as it goes. Our page on when VAT registration applies covers the threshold mechanics. All VAT-registered businesses now keep digital records and file through Making Tax Digital compatible software.
Payroll once the site has staff
Payroll arrives with the first employee. Employer secondary Class 1 National Insurance contributions (NIC) run at 15% above a £5,000 secondary threshold, with the £10,500 Employment Allowance available to a company with genuine non-director staff, and pension auto-enrolment applies to eligible jobholders. On a site run largely by contracted operations and maintenance providers rather than direct employees, check the status of the people doing the work before assuming there is no payroll obligation.
Where the year-end decisions actually sit
The one lever that is genuinely yours to pull is how much allowance to claim and when. Capital allowances are claimed in the amount you choose, up to the maximum, so a company that would otherwise create a large loss can claim less this year and hold the deduction for a year when profit sits above £250,000 and each pound of deduction is worth 25p rather than 19p. Against that, the main-rate WDA is falling from 18% to 14% from April 2026, which makes deductions taken now worth relatively more than deductions left in the pool. Those two pressures point in opposite directions, and the size of your next construction account decides which wins.
The other decision worth taking early is the fixtures analysis on the construction account. A final account that says "civils and installation, £480,000" and nothing else forces someone to reconstruct the split between structure at 3% and plant at 100% from scratch, often years later. Asking the contractor for a costed breakdown before the final certificate is issued costs nothing and is the difference between a defensible claim and an estimate.