Capital allowances on commercial battery storage
A commercial battery is capital plant, not a running cost — and the tax treatment reflects that. Getting the allowances right materially improves the after-tax cost of an install, so it belongs in the business case from the start.
The two allowances that apply
| Allowance | Rate | Applies to |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% | First £1,000,000 of qualifying plant spend, in year one |
| Special-rate 50% First-Year Allowance (FYA) | 50% year one | Qualifying spend above the AIA cap (balance in the special-rate pool) |
| Full expensing | Not available | Full expensing is for main-rate plant; storage is special-rate, so it does not qualify |
A worked example
On a £250,000 behind-the-meter install, a limited company can typically claim 100% AIA against the whole amount in year one (it is within the £1m cap), reducing taxable profit by £250,000. At a 25% corporation-tax rate that is a £62,500 first-year tax saving, improving the effective net cost of the system. On a £1.4m install, the first £1m attracts 100% AIA and the remaining £400,000 attracts the 50% first-year allowance (£200,000 in year one, with the balance written down at the special rate thereafter). These are illustrative — your position depends on your profits, accounting period and other capital spend.
What about VAT?
The 0% VAT relief on battery storage applies only to residential accommodation and buildings used solely for a relevant charitable purpose, and it is set to revert to 5% on 1 April 2027. General commercial premises do not qualify — most businesses pay standard-rate VAT and recover it in the normal way. See grants and funding for the full picture.
This page is general information, not tax advice. Capital allowances depend on your specific circumstances and the rules in force for your accounting period — confirm the position with your accountant before relying on it.