Blog · Published 2026-05-12

Full Expensing vs AIA for solar: which tax relief should you use in 2026?

Two 100% first-year tax reliefs are available for UK commercial solar in 2026 — the Annual Investment Allowance (AIA) and Full Expensing. Both deliver a 100% deduction in year one. Both apply to solar PV panels, inverters, mounting and battery storage. Yet they are not interchangeable — the differences in cap, eligibility and disposal treatment can make one much better than the other for your specific situation.

The five differences that matter

1. Cap. AIA is capped at £1m per year (per group). Full Expensing has no cap. For projects under £1m, both deliver 100% relief; for projects over £1m, Full Expensing is the only 100% route.

2. Eligibility. AIA is available to all UK businesses (limited companies, sole traders, partnerships, LLPs). Full Expensing is limited companies only.

3. New vs used. Full Expensing requires the asset to be new and unused. AIA covers both new and second-hand assets.

4. Disposal treatment. AIA has a balancing charge spread over 8 years if you dispose of the asset within that period. Full Expensing has an immediate balancing charge equal to disposal proceeds.

5. Permanence. Both are permanent. AIA at £1m was extended indefinitely in 2023 Budget. Full Expensing was made permanent in Spring Budget 2024.

Worked example 1: Limited company, £80k solar project

- Project: 100 kWp solar PV on small factory, £80,000 capex (excl. VAT) - Both AIA and Full Expensing available - Year-one tax saving identical: £80,000 × 25% main CT rate = £20,000 - Practical answer: use AIA. The disposal treatment is gentler — if you sell the property within 8 years, the balancing charge is spread out rather than hitting immediately.

Worked example 2: Sole trader farm, £75k solar project

- Project: 95 kWp solar on dairy farm, £75,000 capex - Full Expensing not available (sole trader) - AIA available: £75,000 deduction - Higher-rate income tax saving (45%): £33,750 - Practical answer: AIA — it's the only 100% relief available to you.

Worked example 3: Limited company, £1.8m warehouse solar

- Project: 2 MWp warehouse rooftop solar, £1.8m capex - AIA capped at £1m: saves £250,000 on first £1m. Remaining £800k goes to main pool at 18% writing-down allowance — saves only £36k in year one (full £200k recovered over 8+ years). - Full Expensing on £1.8m: saves £450,000 in year one. - Practical answer: Full Expensing — saves an extra £164k in year one cash terms vs splitting AIA + WDA.

For projects above the £1m AIA cap, Full Expensing is unambiguously better for limited companies that can use it.

When to consider both together

In rare cases, businesses can use both reliefs across different assets in the same year. For example: a limited company buys a £900k solar system (under AIA cap, but also Full Expensing eligible) plus a £200k fleet vehicle (qualifies for AIA only).

- Option A: AIA £1m total → covers full solar + most of vehicle. - Option B: Full Expensing on solar + AIA on vehicle → AIA cap reserved for the vehicle (£200k), Full Expensing applies to the solar (£900k).

Either way the year-one cash effect is identical. The difference is in disposal treatment. If you plan to sell the solar within 8 years, AIA is gentler. If you plan to dispose of the vehicle (most fleet vehicles are 4-year cycles), Full Expensing-on-solar + AIA-on-vehicle is gentler overall.

Watch-outs that bite

Connected-party transfers. Both AIA and Full Expensing can be clawed back if the asset is transferred to a connected party (subsidiary, group company) within the qualifying period.

Long-funding leases. Both reliefs are claimed by the legal owner. Long-funding finance leases mean the financier claims — not you. Operating leases sit outside both reliefs entirely.

Period straddling incorporation. If you incorporate from a sole trader during the year of installation, AIA can have awkward timing as the asset is held by different legal entities pre- and post-incorporation.

Group cap. The £1m AIA is shared across a group of companies. If your parent has used £700k on machinery, you only have £300k of AIA headroom.

Subsidy interaction. If you also receive grants (e.g. IETF, regional growth hub grants), the capital allowance applies only to your post-grant net spend. So a £100k solar project with a £30k grant gives you £70k of qualifying capex for AIA / Full Expensing.

FAQs

FAQs on this topic

Can I claim both AIA and Full Expensing on the same asset?

No — they are alternative reliefs. You choose one for any specific asset. You can use AIA on some assets and Full Expensing on others within the same accounting period.

What happens if my profits are too low to use the full relief?

Both AIA and Full Expensing can create losses that can be carried forward to future years, or (with limits) carried back to the prior 12 months. Losses can also be group-relieved within group companies.

Does AIA / Full Expensing apply to leased solar systems?

Only if you are the legal owner (hire purchase, asset finance treated as ownership). Operating leases mean the financier claims; you cannot. Long-funding leases follow specific rules — your accountant or the finance provider should advise.