Blog · Published 2026-05-12

Full expensing vs AIA for solar: why the panels can only use the AIA — and what happens above £1m

UK corporation tax has two 100% first-year reliefs — the Annual Investment Allowance (AIA) and full expensing — and most solar marketing treats them as a free choice. They are not. Solar panels are special-rate plant (CAA 2001 s104A), and full expensing is a main-rate-only relief, so it is not available on the panels at any project size. The AIA is: 100% relief on the first £1m of qualifying spend a year, for every business type. Above the cap, companies get the 50% special-rate first-year allowance on the balance — there is no 100% route above £1m for solar. Full expensing still matters for new main-rate plant bought alongside (compressors, LED, heat-recovery), which is where the two reliefs are genuinely used together.

The five differences that matter

1. Cap. AIA is capped at £1m per year (per group) and covers special-rate assets, including solar panels. Full expensing has no cap but excludes special-rate assets, so it is not available on solar at all. Under £1m, AIA delivers 100% relief; above £1m, the balance attracts the 50% first-year allowance — there is no 100% route above the cap for solar.

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. Full expensing was made permanent at the Autumn Statement of 22 November 2023.

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

- Project: 100 kWp solar PV on small factory, £80,000 capex (excl. VAT) - Full expensing not available (solar panels are special-rate plant); AIA available - Year-one tax saving: £80,000 × 25% main CT rate = £20,000 - Practical answer: the AIA — the only 100% route on the panels. If the company also buys new main-rate plant that year, put that through full expensing and keep the AIA for the solar.

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 — and not on solar panels for anyone) - 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 on the first £1m: saves £250,000. - 50% special-rate first-year allowance on the remaining £800k: £400,000 deductible, saves £100,000 in year one. The other £400,000 enters the special-rate pool at 6% a year from the following period (about £6,000 of tax in year two). - Year-one saving: £350,000 — not the £450,000 a full-expensing claim would give, because full expensing is not available on solar panels. - Practical answer: plan the cash flow on £350,000, and ask the installer to itemise any new main-rate plant (switchgear upgrades, VSD compressors, LED) separately — that part can take full expensing.

When to consider both together

Businesses routinely use both reliefs across different assets in the same year — the point is to put each asset through the relief that covers it. Example: a limited company buys a £900k solar system plus a £200k new van.

- The solar is special-rate: it goes through the AIA (£900k of the £1m cap). - The van is new main-rate plant: it goes through full expensing, uncapped, leaving £100k of AIA headroom for anything else.

Doing it the other way round — AIA on the van, nothing left for the solar above £100k — would cost the company 50% of the relief on £800k of panels in year one. The disposal rules differ too: on the van, the relief is clawed back in full in the year it is sold; on the solar, the AIA pool unwinds gradually — so a van on a 4-year cycle is the asset to think about before claiming.

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.

FAQs

FAQs on this topic

Can I claim full expensing on solar panels?

No. Solar panels are special-rate expenditure, and full expensing applies only to main-rate plant. The AIA covers them — 100% on the first £1m a year — and companies get the 50% first-year allowance on anything above that.

Can I claim both AIA and full expensing on the same asset?

No — they are alternative reliefs on any one asset. Across different assets in the same accounting period you can use both: the AIA on the solar, full expensing on new main-rate plant bought alongside.

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.