Full expensing and solar PV: why solar cannot use it, and what to claim instead

Solar panels are special-rate plant, so companies cannot claim 100% full expensing on them. HMRC allows the 50% first-year allowance instead — and AIA still gives 100% up to £1m. The correct route, explained.

Overview

Full Expensing is the UK's headline corporate tax incentive for productive capital investment. Introduced in April 2023 to replace the Super-Deduction, it lets limited companies deduct 100% of the cost of qualifying main-pool plant and machinery from their taxable profits in the year of purchase — with no upper limit. At the 25% main corporation tax rate, that translates to a 25p saving for every £1 spent on a qualifying asset, in the year you spend it.

Solar panels do not qualify for full expensing. HMRC classes solar PV as special-rate expenditure (CA22335), and full expensing is available only on main-pool plant and machinery. GOV.UK is explicit: companies cannot claim full expensing for special rate assets, naming solar panels directly, and says those assets "may qualify for the 50% special rate allowance instead".

This is the single most mis-stated fact in UK commercial solar marketing. What you can actually claim: the Annual Investment Allowance gives 100% relief in year one on up to £1m of qualifying spend a year, and it covers special-rate assets — so for the great majority of commercial solar projects the full cost is still relieved in year one, just through AIA rather than full expensing. Above the £1m AIA cap, companies get the 50% first-year allowance on the special-rate balance, with the remainder written down at 6% a year in the special-rate pool. Sole traders, partnerships and LLPs use AIA; the 50% FYA is companies-only. Take your own tax advice before claiming. Where the Annual Investment Allowance caps out at £1m per year, Full Expensing has no cap — so for installations above £1m (typically warehouse, factory and large farm rooftop projects above ~1MWp), Full Expensing is strictly better.

Key facts at a glance

Eligibility criteria

• Available exclusively to UK limited companies subject to corporation tax. Sole traders, partnerships, LLPs and mixed partnerships are excluded — they must use the AIA instead.
• The asset must be new and unused at the time of purchase (second-hand assets do not qualify; refurbished inverters or panels may not qualify — get specific advice).
• The asset must be 'main-pool' plant and machinery. Solar PV panels, inverters, mounting structures, batteries all sit in the main pool. Long-life assets (25+ year expected economic life) go into the 'special rate pool' and qualify for the 50% first-year allowance instead — but most solar assets are treated as main pool.
• The asset must be brought into use in the trade. Stockpiling panels for installation in a later period does not qualify.
• Cars are excluded (use BIK rules instead). Most solar components qualify.
• If the asset is later disposed of, a balancing charge equal to the disposal proceeds is added back to taxable profits in the year of disposal — this is the trade-off for the uncapped relief.

How to apply

Full Expensing is a self-assessed deduction — there is no HMRC application. The process:

Step 1. Confirm your business is a limited company subject to UK corporation tax. (If you are an LLP, partnership or sole trader, you cannot use Full Expensing. Use AIA instead — they have similar effect under the £1m cap.)

Step 2. Your installer issues an invoice that clearly itemises the solar PV system as new plant and machinery. The invoice should distinguish the qualifying assets from any non-qualifying spend (e.g. structural roof repairs, which are usually a separate revenue or capital expense).

Step 3. Your accountant codes the asset to the main-pool plant and machinery account.

Step 4. On your CT600 corporation tax return, the cost is entered in the Full Expensing box (Box 740 from FY2023 returns onwards). HMRC's online filing system handles the deduction automatically.

Step 5. Your corporation tax bill for the period is reduced by 25% of the qualifying spend (or 19% at the small profits rate if your profits are under £50k).

Step 6. Retain the installer's invoice, MCS certificate, commissioning report and a copy of the capital allowances schedule for six years.

Compared to other reliefs

Full Expensing vs AIA — the practical answer:

| Feature | AIA | Full Expensing | | --- | --- | --- | | Maximum claim | £1m per year (group cap) | Unlimited | | Eligible structures | All UK businesses | Limited companies only | | Effective tax saving | 19% or 25% of capex | 19% or 25% of capex | | Disposal treatment | Balancing charge / allowance | Immediate balancing charge equal to proceeds | | Permanence | Permanent (£1m extended) | Permanent since Spring Budget 2024 | | New / used | Either | New only |

For solar specifically: if your project is under £1m and you have a limited company, use AIA — it's gentler on disposal. If your project is over £1m and you have a limited company, use Full Expensing — it's the only way to get 100% relief above £1m. If you're not a limited company, AIA is your only 100% route.

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. Full expensing and solar PV: why solar cannot use it, and what to claim instead 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)

Sources & further reading

• Full Expensing on gov.uk
• HMRC Capital Allowances Manual — Full Expensing
• CT600 corporation tax return guidance

Frequently asked questions