Annual Investment Allowance on solar — 100% first-year relief on £1m of plant.

How AIA on solar PV works

The Annual Investment Allowance is a UK tax allowance that gives 100% first-year capital allowance on the first £1m of qualifying plant and machinery per business per accounting period. Solar PV is special rate expenditure for capital allowances (HMRC Capital Allowances Manual CA22335), and AIA is available against special rate expenditure — so solar is eligible for AIA in full. Mechanically, AIA reduces your taxable profits by the AIA-claimed amount in the period the capex is incurred, saving you 19% (basic rate income tax / small profits corporation tax) to 25% (main rate corporation tax) of capex in tax.

For a sole trader paying 40% income tax on a £180k solar project, AIA delivers a £72k tax reduction in the year of installation. For a partnership of two equal partners on the same project, the £180k AIA is split across the partners' tax returns. For a small UK incorporated company paying small profits CT (19%), £180k AIA delivers £34k of CT relief.

AIA vs Full Expensing — why solar uses AIA

Full Expensing is a 100% first-year allowance for main-rate plant. Solar panels have been designated special rate expenditure since April 2012 (HMRC Capital Allowances Manual CA22335), so Full Expensing is not available on a solar installation. AIA is, because it can be set against special rate expenditure. The comparison:

AIA

• Available to sole traders, partnerships, LLPs, companies
• Capped at £1m of plant per business per accounting period
• Available against special rate expenditure — so it covers solar PV in full
• Covers both new and (in limited cases) used plant
• Group-shared cap for connected companies

Full Expensing

• UK incorporated companies only (not sole traders / partnerships)
• Main-rate plant only — not available on solar PV, which is special rate
• Uncapped — covers any size of qualifying main-rate plant
• New plant only
• Per-company cap; companies in groups can each claim

For solar, AIA is the 100% year-one route whatever the business structure. Above the £1m AIA cap, companies can claim the 50% special rate first-year allowance on the excess, with the balance going into the special rate pool and written down at 6% a year; sole traders and partnerships write the excess down at 6% in the same pool. Full Expensing is not an option on solar for any of them.

Who AIA on solar specifically suits

Sole trader and partnership farms

Roughly 65% of UK farms with annual turnover over £500k still operate as sole trader / partnership / LLP rather than incorporated companies. For these, AIA is the route — and because solar is special rate expenditure, it would be the route even if they were incorporated. Agriculture sector guide.

Independent professional service partnerships

Solicitors, accountants, architects, consultants — many UK professional firms operate as LLPs. AIA covers solar PV on their offices.

Smaller incorporated companies under SME profit thresholds

Small UK companies on the small profits CT rate (19% rather than main rate 25%) claim AIA on solar in exactly the same way as larger companies. The main rate threshold (£250k profits, with marginal relief between £50k-£250k) means small companies see a smaller absolute tax reduction than mid-size companies on the same capex.

New incorporations and start-ups

For start-ups with limited tax liability in early years, AIA creates a loss carry-forward for future periods. The relief still has value but timing matters. We model the carry-forward in financial models for early-stage operators.

Worked AIA example — incorporated farm with £150k solar project

A 280-cow dairy farm operating as a limited company (LLPs see same effect via partner returns). 150 kWp rooftop solar at £115,000 turnkey, with £40,250 REPF grant.

• Headline capex: £115,000
• REPF grant: £40,250 (35% effective)
• Net capex for AIA: £74,750
• AIA at 25% main rate CT: £18,688
• Net cost to client: £56,062
• Annual savings: £24,000
• Payback: 2.3 years

For the same farm operating as a partnership, AIA at 40% income tax on the same net capex delivers £29,900 of relief — £56,150 net cost. Same project, different tax structure, materially different tax saving.

How AIA stacks with the broader 2026 funding stack

AIA is one leg of the active 2026 commercial solar funding stack. Combined with the others:

• AIA + 0% VAT on a £180k system → effective capex ~£123k
• AIA + 0% VAT + SEG → recurring revenue line on top, ~£15-£40k/year on a 250kWp system
• AIA + 0% VAT + REPF (rural) → ~£60k effective capex on a £180k farm install
• AIA + 0% VAT + Local Growth Fund (Mayoral areas) → similar economics to pre-closure UKSPF
• PPA route — alternative where AIA isn't claimable on the asset (the funder claims it)

Timing the capex around your accounting period

The £1m AIA cap is per accounting period. For projects above £1m or for businesses with multiple capex priorities, sequencing the spend across a year-end can double the AIA available. Practical examples:

• A £1.4m project commissioned in two phases (£900k pre-year-end, £500k post) gets AIA on £1m in year 1 and £400k in year 2 — full coverage.
• A business with another £400k of plant capex in the same period as solar should weigh whether to push the solar into the next period to fully claim AIA on both.

We help time capex around accounting periods to maximise current-period relief — this is part of standard scoping work.

Related — full UK commercial solar tax routes

• Full Expensing on solar — why a main-rate allowance does not cover solar PV
• 0% VAT on commercial solar — extended from domestic, applied at install
• Smart Export Guarantee — recurring revenue for surplus exports
• Full grants and funding hub — every active 2026 route