Full Expensing for business solar PV
Full Expensing 2026 — UK limited companies can deduct 100% of commercial solar capex from corporation tax with no cap. Eligibility, examples...
100% first-year deduction — no upper limit
Tax relief · Updated 12 May 2026
Annual Investment Allowance for business solar
AIA 2026 guide — how UK businesses claim 100% first-year tax relief on commercial solar PV up to £1m. Eligibility, calculation worked examples, group cap rules.
Overview
The Annual Investment Allowance is a capital allowance that lets UK businesses deduct 100% of the cost of qualifying plant and machinery from their taxable profits in the year of purchase, up to an annual cap of £1 million. It applies to all UK business structures — limited companies, partnerships, sole traders — and to almost any tangible commercial asset including solar PV systems and battery storage.
For solar specifically, the AIA is the workhorse of UK commercial solar tax planning. Where larger systems often need the more powerful Full Expensing regime (which is limited-company only), the AIA covers the entire commercial solar SME market — including the substantial population of farms, hotels and family-run manufacturers that operate as sole traders, partnerships or LLPs and are therefore ineligible for Full Expensing.
Key facts at a glance
| Maximum claim per year | £1,000,000 |
| Effective tax saving (25% CT rate) | Up to £250,000 per year |
| Effective tax saving (19% small CT rate) | Up to £190,000 per year |
| Effective tax saving (sole trader top-rate IT) | Up to £450,000 per year |
| Group cap | £1m shared across all companies in a corporate group |
| Time to benefit | Crystallises at next corporation tax / self-assessment filing |
Eligibility criteria
- Available to any UK business: limited companies, sole traders, partnerships, LLPs (excluding mixed partnerships with corporate members in some cases).
- Solar PV panels, inverters, mounting structures, DC and AC cabling, isolators, battery storage, monitoring equipment all qualify as 'plant and machinery'.
- Roofing works needed to support the panels typically do not qualify unless integral to the installation (e.g. solar-tile systems where the panel IS the roof).
- Used by you in your business — not held for resale and not let to a residential tenant. (Commercial landlords can claim AIA on solar systems installed on let commercial property.)
- Asset must be brought into use in the same accounting period for which AIA is claimed — get systems commissioned before year-end if you need the relief that year.
- £1m cap is per accounting period; if your period is less than 12 months, it's time-apportioned.
How to apply
The AIA is not an application — it is a deduction claimed when you file your tax return. Practical sequence:
Step 1. Your installer issues an invoice clearly itemising the solar PV system as plant and machinery. Have your accountant flag the invoice for the capital allowances pool.
Step 2. At financial year-end, your accountant calculates the AIA available (£1m minus any other AIA claims you have made in the period — for example a fleet vehicle or new plant).
Step 3. The full installation cost (assuming it falls within the AIA cap) is added to the "Annual Investment Allowance" line of your CT600 corporation tax return (Box 725) or your Self Assessment SA100 / SA800.
Step 4. HMRC processes the return — your corporation tax bill for the year is reduced by the AIA claim multiplied by your marginal CT rate. There is no separate HMRC sign-off; the AIA is self-assessed.
Step 5. Keep your installer's invoice, MCS certificate, and commissioning report for six years in case of HMRC enquiry. The Mac-vendor disclosure rules mean HMRC may sample-test claims, especially on large amounts.
Worked examples
Worked example: 100kWp commercial rooftop install, limited company, £95,000 net of VAT.
- Installation cost: £95,000 plus £19,000 VAT (reclaimable for VAT-registered businesses). - AIA-eligible plant and machinery: £95,000 (assumes panels, inverters, mounting, cabling, battery). - AIA deduction: £95,000 (well under the £1m cap). - Corporation tax saved (at 25% main rate): £23,750. - Net effective cost after AIA: £71,250. - 25-year SEG income (assume 1p/kWh average export tariff, 35% export): approx. £8,400. - 25-year self-consumption savings (assume 28p/kWh import, 65% self-consumed): approx. £490,000 (undiscounted).
Net IRR after AIA: ~17%. Payback: 4.5–5.5 years.
Worked example: 80kWp ground-mount, sole trader farm, £72,000.
- Sole trader at higher rate IT (45%): AIA saving £32,400. - Net effective cost: £39,600. - Payback drops below 4 years if SEG income is reinvested.
Compared to other reliefs
AIA vs Full Expensing — which to use?
- Limited companies can use either, and Full Expensing is uncapped, so for installations over £1m, Full Expensing wins decisively. - For installations under £1m, the cash effect is identical — both deliver 100% first-year deduction. The difference is in disposal: AIA has a balancing charge over 8 years; Full Expensing has an immediate balancing charge of 100% of disposal proceeds (so disposal is taxed in full). - Sole traders, partnerships and LLPs cannot use Full Expensing. AIA is the only 100% FYA route available. - Most commercial solar SMEs use AIA because (a) their installs are well under £1m, and (b) they want to retain flexibility on disposal treatment.
If your project is between £750k and £1m, always model both routes with your accountant — the AIA cap interacts with other plant purchases and the group cap in ways that can flip the answer.
Watch-outs and pitfalls
- The £1m AIA cap is shared across a group of companies. If your parent company has used £900k of AIA on machinery, you only have £100k of AIA headroom for your solar project. Plan around this.
- Sole traders who go limited mid-project can lose AIA timing. The relief must be claimed in the same accounting period the asset is brought into use — straddling incorporation can create awkward apportionment.
- Mixed-use property complicates AIA. If you install solar on a property that is partly residential, you can only claim AIA on the commercial portion. This is a common issue for pubs with letting rooms and farms with farmhouse-attached barns.
- AIA disposal rules: if you dispose of the asset within 8 years, a balancing charge can claw back some of the relief. Most solar disposals are at end-of-life so this rarely bites, but it matters if you sell the property.
- AIA cannot be claimed by long-funding lessors. If you take a long-funding finance lease on the system, the financier claims AIA — not you. Operating leases sit outside AIA entirely (you claim the rental as a revenue expense).
Stacking with other grants and reliefs
Most successful 2026 commercial solar projects use a combination of schemes — this is where independent advice earns its keep. Annual Investment Allowance for business solar typically combines well with:
- Smart Export Guarantee for businesses — 3p–15p per kWh exported (2026 fixed tariffs)
- Industrial Energy Transformation Fund for solar PV — 30-50% of project capex (typically £100k-£14m awards)
- Regional growth hub grants for business solar — £1,000 – £25,000 typical (match-funded, usually 40-60%)
Sources & further reading
Related schemes
Tax relief Income scheme Tax relief
Other relevant grants & reliefs
Smart Export Guarantee for businesses
Smart Export Guarantee 2026 guide for UK businesses — best export tariffs, eligibility for 50kWp+ systems, how to register, and how to combi...
3p–15p per kWh exported (2026 fixed tariffs)
Enhanced Capital Allowances for energy-saving solar equipment
Enhanced Capital Allowances 2026 — niche but valuable 100% FYA for specific energy-saving equipment. How it applies to commercial solar inve...
100% first-year allowance on qualifying ETL-listed equipment
FAQs
Frequently asked questions
What is Annual Investment Allowance for business solar?
The Annual Investment Allowance is a capital allowance that lets UK businesses deduct 100% of the cost of qualifying plant and machinery from their taxable profits in the year of purchase, up to an annual cap of £1 million. It applies to all UK business structures — limited companies, partnerships, sole traders — and to almost any tangible commercial asset including solar PV systems and battery storage.
Is the scheme open for applications in 2026?
As of May 2026, the scheme's funding status is: Permanent (no expiry currently announced). We re-check application windows monthly — if this is critical to your planning, request an eligibility check for the current programme status.
How much can a UK business get?
Typical award range: Up to £1 million per year, 100% first-year deduction. The size of any individual award depends on project capex, sector eligibility, match funding available and the scheme's per-applicant cap.
Who administers the scheme?
HMRC — claimed through Corporation Tax or Self Assessment. Applications are submitted through the administrator's process — we link the relevant gov.uk and scheme pages at the bottom of this guide.
What are the biggest pitfalls applicants fall into?
The £1m AIA cap is shared across a group of companies. If your parent company has used £900k of AIA on machinery, you only have £100k of AIA headroom for your solar project. Plan around this. Sole traders who go limited mid-project can lose AIA timing. The relief must be claimed in the same accounting period the asset is brought into use — straddling incorporation can create awkward apportionment. Mixed-use property complicates AIA. If you install solar on a property that is partly residential, you can only claim AIA on the commercial portion. This is a common issue for pubs with letting rooms and farms with farmhouse-attached barns.
Check if your business qualifies
Free 60-second eligibility check tells you whether Annual Investment Allowance for business solar applies — and which other schemes can stack.
Run free eligibility check Or call 0800 246 1132