Full Expensing and solar — why it does not apply, and what does.

The correction: Full Expensing does not apply to solar PV

Full Expensing was introduced in the 2023 Spring Budget and made permanent in the Autumn Statement 2023. It gives companies within the charge to corporation tax a 100% first-year allowance — but only on qualifying main-rate plant and machinery. Solar is not main-rate plant.

HMRC is explicit on this point. Capital Allowances Manual CA22335 states that with effect from 1 April 2012 (corporation tax) and 6 April 2012 (income tax), all capital expenditure on the provision of solar panels is specifically designated as special rate expenditure. Special rate expenditure sits in the special rate pool at a 6% writing-down allowance, not the 18% main pool — and it is outside the scope of Full Expensing.

This matters because a Full Expensing claim on solar is an incorrect claim. The relief itself is not lost — it is claimed under a different heading — but the wrong heading on a corporation tax return is an error to be corrected, and it is repeated across most of the commercial solar web. Always take the final position from your accountant against your own asset register.

What to claim instead: the Annual Investment Allowance (AIA)

The correct route to 100% relief in year one is the Annual Investment Allowance (AIA). AIA covers up to £1,000,000 of qualifying capital expenditure per year, and — the key point for solar — AIA is available against special rate expenditure. Because the overwhelming majority of commercial solar projects sit under £1m, AIA gives full year-one relief on the whole spend.

The cash effect is exactly what people expect from Full Expensing, because 100% relief is 100% relief: every £1 of qualifying solar capex reduces taxable profits by £1 in the year of acquisition, saving 25p in corporation tax at the 25% main rate. A £400k commercial solar install delivers a £100k corporation tax reduction in the year the system is commissioned. The numbers in every worked example below are unchanged — only the mechanism name is different.

Above the £1m AIA cap (or where AIA is unavailable — for example it is already used elsewhere in the group), the excess attracts the 50% special rate first-year allowance in year one, with the remaining balance going into the special rate pool and attracting 6% writing-down allowances thereafter. Relief is spread, not lost.

AIA is also broader in reach than Full Expensing: it is available to companies, sole traders and partnerships of individuals, whereas Full Expensing is companies only. The £1m limit is shared across groups and related businesses, so check the group position before assuming a full allowance.

Why this matters more in 2026 than ever

For most of 2022–24, commercial operators had multiple parallel options for de-risking solar capex: IETF Phase 3 (manufacturing), PSDS Phase 4 (public sector), UKSPF (general SME), regional/devolved schemes, plus tax allowances. The grant menu was thick and many businesses prioritised it.

By May 2026, IETF Phase 3, PSDS Phase 4 and UKSPF have all closed to new applications. Direct cash grants for new commercial solar projects are now scarce — limited to REPF (rural businesses), the Local Growth Fund (11 Mayoral Authority areas), Salix loans (public sector), GBE Community Fund (community-led), and Scottish IETF (Scottish manufacturers). For everyone else, capital allowances are the foundation — and that means AIA, not Full Expensing. AIA still delivers a ~25% effective subsidy, every time, with no application.

Worked examples

Three illustrative cases. Note that the figures below are identical to the ones you will see quoted under the Full Expensing heading elsewhere — because 100% year-one relief produces the same cash outcome whichever allowance delivers it. Only the mechanism name changes.

Case 1 — £180k commercial install, no grant

250 kWp rooftop solar at £180,000 turnkey for a mid-sized manufacturer. No grant available (English IETF closed). AIA claim: 100% × £180,000 = £180,000 reduction in taxable profits, comfortably inside the £1m annual allowance. Corporation tax saving: £45,000 (at 25%). 0% VAT applies, so no VAT to recover. Effective net capex: £135,000. Annual savings: £42,000. Payback: 3.2 years.

Case 2 — £620k industrial install, IETF replaced by AIA

800 kWp rooftop on a Coventry automotive supplier. Originally scoped with IETF Phase 3 (would have got ~£140k grant). Post-closure, capital allowances alone apply. AIA on £620k = £620k reduction in taxable profits = £155k corporation tax saving — still under the £1m AIA cap, so no part of it drops into the 50% special rate first-year allowance. Effective net capex: £465,000 (vs ~£325,000 if IETF were still open). Payback: 4.6 years (vs 3.5 years pre-closure). Still within hurdle.

Case 3 — £45k small commercial, AIA route

50 kWp rooftop at £45,000 for a small SME. AIA (100% first-year relief on the first £1m of plant per year, and available against special rate expenditure such as solar) covers it fully. Tax saving: £11,250 (at 25%). 0% VAT applies. Effective net capex: £33,750. Payback: 5.8 years.

Practical AIA checklist for solar

1. Claim under AIA, not Full Expensing. Solar is special rate expenditure per HMRC CA22335, so Full Expensing — a main-rate allowance — is not available. AIA is.
2. Check your remaining AIA headroom for the period. The £1,000,000 limit is annual and shared across a group and related businesses. Spend above the cap attracts the 50% special rate first-year allowance, with the balance in the 6% special rate pool.
3. Time the capex around your accounting period end. Capex must be incurred in the period claimed. Sometimes worth accelerating an install to fall in current period.
4. Separate solar plant from civils, fees, and ineligible items in your asset register. Roof remediation, structural work and project management fees may be capital but treated differently — book them on separate lines.
5. Keep the asset on the register for the qualifying period. A disposal triggers a balancing adjustment; plan around any building disposal.
6. Apply 0% VAT at install. Stack-able with AIA — installers should apply automatically but worth confirming at quote stage.

Capital allowances alongside the rest of the active 2026 stack

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

• AIA + 0% VAT on a £400k system → effective capex ~£275k
• AIA + 0% VAT + SEG → recurring revenue line on top, ~£15–£60k/year added benefit on a 250kWp system
• AIA + 0% VAT + REPF (rural) → ~£200k effective capex on a £400k farm install
• AIA + 0% VAT + Local Growth Fund (Mayoral areas) → similar economics to pre-closure IETF
• PPA route — alternative structure where you don't claim capital allowances at all because you don't own the asset; the funder claims them instead

What we do for clients on capital allowances

Three things specifically. (1) Confirm the eligibility and correct pool of every capex line — the solar plant itself is special rate expenditure and therefore an AIA claim, not a Full Expensing claim; some adjacent works (roof remediation, structural reinforcement) need careful classification. (2) Time the capex around your accounting period and your remaining AIA headroom, so the relief lands where you want it and any spend above the £1m cap is correctly routed to the 50% special rate first-year allowance. (3) Build the financial model showing pre-tax and post-relief cash flows to your finance director, so the board paper accurately reflects the after-tax economics. The free funding review includes AIA modelling. We are not tax advisers — the claim itself is made by your accountant, and we provide the capex breakdown that supports it.