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 exampl...
Up to £1 million per year, 100% first-year deduction
Tax relief · Updated 12 May 2026
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
| Headline rate | 100% on main-pool plant — but solar panels are special-rate and excluded |
| What solar gets instead | AIA: 100% on the first £1m a year; above that, the 50% special-rate first-year allowance (companies) |
| Effective tax saving via the AIA (25% main CT rate) | 25p per £1 of solar capex, up to the £1m cap |
| Cap | None on full expensing itself — irrelevant to the panels |
| Eligible structures | Limited companies only (the AIA covers every business type) |
| Year first available | April 2023 (replaced the Super-Deduction) |
| Made permanent | Autumn Statement, 22 November 2023 — no expiry date |
Eligibility criteria
- Full expensing is available only to UK limited companies subject to corporation tax; sole traders, partnerships, LLPs and mixed partnerships cannot use it — they use the AIA, which covers solar in full up to £1m.
- The asset must be new and unused at the time of purchase (second-hand or remanufactured kit does not qualify). The AIA has no such condition.
- The asset must be main-pool plant and machinery. Solar panels are special-rate expenditure (CAA 2001 s104A), so the panels, mounting and generation plant are excluded; inverters and cabling bought as part of the solar system follow the system. Batteries are not named in the statute and their classification is unsettled — ask your adviser before assuming either route.
- The asset must be brought into use in the trade. Stockpiling plant for installation in a later period does not qualify.
- Cars are excluded (use the car rules instead). New vans, VSD compressors, LED lighting and heat-recovery plant bought alongside a solar project are the typical qualifying items.
- If a full-expensed asset is later disposed of, a balancing charge equal to the disposal proceeds is added back to taxable profits in the year of disposal — the trade-off for the uncapped relief.
How to apply
For the solar panels: do not claim full expensing. Claim the Annual Investment Allowance on the system (100% on the first £1m a year); if you are a company and the project exceeds the cap, claim the 50% special-rate first-year allowance on the balance. The steps below are for the new main-rate plant a company may buy in the same programme.
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 at all — the AIA is your route for everything.)
Step 2. Ask the installer to itemise the invoice: the solar PV system (special-rate) separately from any main-rate plant (switchgear upgrades, VSD compressors, LED lighting, heat-recovery plant) and from non-qualifying spend such as structural roof repairs.
Step 3. Your accountant codes the solar to the special-rate pool (with the AIA claim against it) and the qualifying main-rate items to the main pool.
Step 4. On the CT600, the main-rate items go in the full expensing box; the solar is claimed through the AIA box. HMRC's online filing handles the deduction automatically.
Step 5. Your corporation tax bill for the period falls by 25% of the qualifying spend (19% at the small profits rate) — through the AIA for the panels, through full expensing for the main-rate plant.
Step 6. Retain the itemised invoice, the commissioning report and a copy of the capital allowances schedule for six years.
Worked examples
Worked example: 250kWp warehouse rooftop install, limited company, £210,000 net of VAT.
- Installation cost: £210,000 (panels £92k, inverters £28k, mounting £36k, cabling £18k, battery 200kWh £36k). - Full expensing deduction on the solar: none — special-rate plant. - AIA deduction: £210,000 (well inside the £1m cap; the battery's classification is unsettled but it sits within the AIA either way). - Corporation tax saved (at 25%): £52,500. - Net effective cost after tax: £157,500. - Year-one cash effect: minus £52,500 (saved tax due in the same accounting period).
Worked example: 1.2MWp factory rooftop install, limited company, £840,000 net of VAT.
- AIA route: £840k is inside the £1m cap — the whole system qualifies. Saving = £210,000. - Full expensing route: not available on the panels. - For solar there is no choice to make: claim the AIA up to the £1m cap, then the 50% first-year allowance on the balance. There is no 100% route above £1m for solar panels.
Worked example: 2.5MWp solar farm, limited company, £1.95m.
- AIA: capped at £1m. Saving on the first £1m = £250,000. - 50% special-rate first-year allowance on the remaining £950k: £475,000 deductible, saving £118,750 in year one. - Year-one saving: £368,750. The other £475,000 enters the special-rate pool at 6% a year from the following period. - A full-expensing claim would have saved £487,500 — and it is not available, which is why solar-farm cash-flow models built on it are wrong by £118,750 in year one.
Compared to other reliefs
Full expensing vs AIA — the practical answer for solar:
| Feature | AIA | Full Expensing | | --- | --- | --- | | Covers solar panels? | Yes | No — special-rate assets are excluded | | Maximum claim | £1m per year (group cap) | Unlimited, on main-rate plant only | | Eligible structures | All UK businesses | Limited companies only | | Effective tax saving | 19% or 25% of capex | 19% or 25% of qualifying main-rate capex | | Disposal treatment | Balancing charge / allowance through the pool | Immediate balancing charge equal to proceeds | | Permanence | Permanent (£1m extended) | Permanent since the Autumn Statement of November 2023 | | New / used | Either | New only |
For solar there is no choice: the panels cannot use full expensing at any size. Under £1m the AIA gives 100% in year one to any business; over £1m a company gets the 50% first-year allowance on the balance and there is no 100% route. Full expensing matters only for the new main-rate plant you buy alongside — put that through full expensing so the AIA cap stays with the panels.
Watch-outs and pitfalls
- Not for the panels. Any model, proposal or web page that applies full expensing to solar capex overstates the year-one relief above £1m and misnames it below — claim the AIA.
- Limited companies only. If you are a sole trader or partnership, you cannot use full expensing on anything — the AIA route is your alternative, and it covers the solar in full up to £1m.
- Balancing charge on disposal of full-expensed plant. If you sell the building with main-rate plant you claimed full expensing on, the proceeds attributable to it are taxed as income at your CT rate. Sale-and-leaseback structures need careful planning around this.
- New and unused requirement (full expensing and the 50% first-year allowance, not the AIA). Refurbished inverters or panels supplied as part of a remanufactured offer may not qualify for the 50% FYA — get the installer to confirm in writing.
- Connected-party sales. If the asset is later transferred to a connected party (subsidiary, fellow group company), the relief can be clawed back unless the transfer is properly structured.
- Solar farm electricity supply arrangements. If you structure the project as a separate special-purpose company supplying electricity under a PPA, that company claims the AIA and the 50% first-year allowance on the solar — not full expensing — and the trading-property company claims nothing on it. Get specialist advice.
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: closed since July 2025 — what industrial sites use for solar now — Closed — was 30-50% of project capex; no new awards since the Spring 2024 window
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 ended in April 2020 — what to claim on solar instead
The Energy Technology List route to Enhanced Capital Allowances ended in April 2020. What replaced it for commercial solar: AIA, the 50% fir...
Withdrawn April 2020 — claim AIA or the 50% first-year allowance instead
FAQs
Frequently asked questions
What is Full expensing and solar PV: why solar cannot use it, and what to claim instead?
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.
Is the scheme open for applications in 2026?
As of May 2026, the scheme's funding status is: Permanent (Autumn Statement, 22 November 2023) — but not available on solar panels. 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: Not available on solar panels. AIA 100% up to £1m, or the 50% special-rate first-year allowance. 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 (CT600). 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?
Not for the panels. Any model, proposal or web page that applies full expensing to solar capex overstates the year-one relief above £1m and misnames it below — claim the AIA. Limited companies only. If you are a sole trader or partnership, you cannot use full expensing on anything — the AIA route is your alternative, and it covers the solar in full up to £1m. Balancing charge on disposal of full-expensed plant. If you sell the building with main-rate plant you claimed full expensing on, the proceeds attributable to it are taxed as income at your CT rate. Sale-and-leaseback structures need careful planning around this.
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