UK tax — May 2026

Solar tax relief in the UK — Full Expensing, AIA, 0% VAT and capital allowances.

With major direct grants closed in 2024, UK tax relief on commercial solar is now the most reliable subsidy. Combined Full Expensing + 0% VAT delivers ~40% effective cost reduction with no application risk. This is the working 2026 guide to every UK solar tax route.

Why solar tax relief matters more in 2026 than ever

For most of 2022-24, UK businesses had multiple parallel options to de-risk 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.

By May 2026, IETF, PSDS and UKSPF have all closed to new applications. Direct cash grants for new commercial solar projects are scarce — limited to REPF (rural), Local Growth Fund (11 Mayoral Authority areas), Salix loans (public sector), GBE Community Fund (community-led), and Scottish/Welsh/NI devolved equivalents. For everyone else, tax relief is the foundation.

The good news: UK solar tax relief is now the most generous it has been. Full Expensing was made permanent in Autumn Statement 2023, 0% VAT was extended from domestic to commercial in subsequent budgets, and Annual Investment Allowance remains at the £1m cap. Combined, these deliver approximately 40% effective subsidy on most UK commercial solar projects — equivalent to or better than what direct grants used to deliver after eligibility hurdles.

The three UK solar tax relief routes

Full Expensing (companies only, uncapped)

100% first-year capital allowance on qualifying main-pool plant for UK incorporated companies paying corporation tax. For a company paying main-rate CT (25%), saves 25p in tax per £1 of solar capex. No application; claimed on the next CT return. Made permanent in Autumn Statement 2023. Full guide.

Annual Investment Allowance (sole traders, partnerships, companies)

Same 100% first-year effect as Full Expensing on the first £1m of plant per business per accounting period. Available to sole traders, partnerships, LLPs and companies. For sole traders, saves at the marginal income tax rate (20-45% depending on overall income). Full AIA guide.

0% VAT on commercial solar (any UK business)

Originally introduced for domestic solar in 2022, extended to commercial properties in subsequent budgets. Saves approximately 17% on the VAT-inclusive project cost. Applied at the invoice stage by the installer — no application required. Some installers default to 20% VAT on commercial — always ask explicitly for the 0% rate at quote stage.

Worked examples by entity type

UK incorporated company on £400k commercial solar

Headline capex (ex-VAT): £400,000
0% VAT applied at install: saves £80,000 vs 20% VAT
Full Expensing tax saving (25% main rate CT): £100,000
Effective net cost: £300,000 (assuming the £400k figure was already net of grants and was ex-VAT)
Effective subsidy: 25% via Full Expensing
Combined cash impact: £180k of relief on a £400k headline (45% effective)

UK partnership farm on £180k REPF-funded solar

Headline capex: £180,000
REPF grant: £63,000 (35% effective)
Net capex for AIA: £117,000
AIA at 40% partner income tax: £46,800
0% VAT applied at install: ~17% off VAT-inclusive cost
Effective net cost to partners: £70,200
Effective subsidy: 61% combined

UK sole trader on £45k commercial solar

Headline capex: £45,000
AIA tax relief at 40% marginal income tax: £18,000
0% VAT applied at install: ~17% off VAT-inclusive cost
Effective net cost: £27,000
Effective subsidy: 40%

Asset register — what HMRC wants to see

HMRC expects a clean asset register breakdown showing solar plant separately from civils, professional fees and other lines. Specific items that should be on separate asset register lines:

Solar PV modules (panels)
Inverters
Mounting structure
DC infrastructure (cabling, isolators, combiners)
AC infrastructure (cabling, switchgear)
Battery storage (if included; eligible per HMRC 2023 clarification)
Monitoring and metering
DNO connection costs
Design and project management fees (capital portion)
Roof remediation (separate treatment)

We provide a template asset register to clients to make this clean. Most installers have their own template; we cross-check.

Timing the capex around the accounting period

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

What about second-hand solar plant?

Full Expensing is for new plant only. Second-hand or refurbished solar panels do not qualify. AIA covers some used plant (limited circumstances). For solar specifically, all installations should use new Tier 1 modules — second-hand installations are rare in commercial UK solar in 2026 and not recommended.

Sale of the building or solar asset later

Sale within 8 years can trigger a balancing charge — broadly the lower of (sale price) or (original Full Expensing claimed) gets added back to taxable profits in the year of sale. For solar this rarely matters in practice; PV is sold as part of a building sale, where capital allowances transfer to the buyer.

Full Expensing on solar — primary tax route for UK companies
AIA on solar — for sole traders, partnerships, LLPs
0% VAT on commercial solar
Full grants and funding hub
UK government solar grants — every department's route

UK solar tax relief FAQs

Is there tax relief on solar panels for UK businesses?

Yes. UK businesses get tax relief on commercial solar through three routes. Full Expensing — 100% first-year capital allowance on qualifying plant for UK incorporated companies, effective 25% subsidy via corporation tax saving. Annual Investment Allowance — same 100% first-year effect on first £1m of plant, available to sole traders, partnerships and companies. 0% VAT on commercial solar — recently extended from domestic, applied at install. Combined, these reduce effective capex by ~40% for typical UK commercial solar projects.

How much tax relief do I get on commercial solar?

For a UK incorporated company paying main-rate corporation tax (25%): every £1 of qualifying solar capex saves 25p in corporation tax via Full Expensing or AIA. For a small UK company paying small profits CT (19%): savings are 19p per £1. For sole traders and partnerships paying income tax at 20-45% marginal rates: savings vary by partner tax bracket, typically 20-40p per £1. 0% VAT separately saves approximately 17% on the VAT-inclusive project cost (not stacking with the income tax / corporation tax saving — they apply to different bases).

Is the 0% VAT on commercial solar permanent?

The 0% VAT relief on solar PV (originally introduced for domestic in 2022) was extended to commercial properties in subsequent budget cycles. Current expectation is that it remains in place through the current Treasury budget cycle — at least 2027. Future budget changes could affect this; we track quarterly and notify clients of any policy changes. Always confirm the current rate at the date of your install.

Can I claim solar tax relief if I'm a sole trader?

Yes — through Annual Investment Allowance. AIA covers the first £1m of qualifying plant per business per accounting period for sole traders, partnerships, LLPs and companies. The 100% first-year effect is the same as Full Expensing for projects under £1m. Sole traders save at their marginal income tax rate (20-45% depending on overall income). Partnerships split the AIA across partners' tax returns based on profit-sharing ratios. <a href="/annual-investment-allowance-solar">Full AIA guide</a>.

Can I combine solar tax relief with grants?

Yes. Tax allowances apply to the net of grant. Example: a £400k system with a £100k REPF grant — Full Expensing applies to the £300k net of grant, saving £75k in corporation tax. Combined effective subsidy: £100k grant + £75k tax saving = £175k of £400k = ~44% effective subsidy. 0% VAT is separate and applies at the install stage on whatever the project pays VAT on.

Do I need to apply for solar tax relief?

No. Full Expensing and AIA are claimed automatically on your corporation tax return (companies) or self-assessment return (sole traders, partnerships) for the period in which the capex was incurred. 0% VAT is applied at the invoice stage by the installer. The only documentation requirement is a clean asset register showing the eligible solar plant separately from civils, professional fees and other lines. We provide template asset registers to clients.

What's the difference between Full Expensing and AIA on solar?

For projects under £1m of plant per business per period, the two allowances deliver the same effect (100% first-year). The differences: Full Expensing is companies-only and uncapped; AIA covers sole traders / partnerships / companies and is capped at £1m per business per period. Most companies use AIA on smaller items and Full Expensing on larger plant. Sole traders and partnerships use only AIA — Full Expensing is unavailable.

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