Capital allowances on commercial solar: the full expensing trap
Solar panels do not qualify for full expensing. They are special rate expenditure, and HMRC’s own manual says so by using them as the worked example. Most businesses still get 100% in year one — through a different allowance, with different rules and a different limit.
Solar is special rate expenditure, so full expensing does not apply to it.
HMRC’s rates-and-pools guidance lists solar panels among the items on which only 6% relief may be claimed. Full expensing is for main rate plant. The route to 100% in year one is the Annual Investment Allowance, and for most businesses it gets to the same place.
Why this page exists
Search for commercial solar and you will be told, repeatedly, that you can claim full expensing — a 100% first-year deduction. It is the single most common tax claim in solar marketing.
It is wrong, and the correction matters less than you would think, which is probably why nobody bothers to make it. Most businesses do get 100% in year one. They get it through a different allowance, with a £1 million limit, different eligibility, and a different answer for anyone spending above that line.
What solar actually is, for tax
HMRC divides plant and machinery into a main pool and a special rate pool. Solar panels are in the special rate pool: the rates-and-pools guidance lists them directly under “You can only claim 6% tax relief on”.
| Main pool | Special rate pool | |
|---|---|---|
| Writing down allowance | 14% | 6% |
| Full expensing (100% first year) | Yes, companies | No |
| 50% first-year allowance | — | Yes, companies |
| Annual Investment Allowance | Yes | Yes |
| Solar panels | ← here |
The three allowances, and which one you want
Full expensing — 100% of the cost deducted in year one. Companies subject to Corporation Tax only, expenditure on or after 1 April 2023, asset new and unused. Main rate expenditure only, so not solar.
The 50% first-year allowance — the special rate equivalent. Deduct half the cost in year one; the balance goes to the special rate pool and is written down at 6% thereafter. Companies only, new and unused only. This is the allowance solar qualifies for, and for most buyers it is not the best one available.
The Annual Investment Allowance — £1 million a year, 100% relief, and it can be claimed on special rate expenditure. HMRC’s own capital allowances manual works an example on exactly this: expenditure on solar panels and an electrical system, eligible for “the 50% First-Year Allowance, the AIA or special rate WDAs”, with the AIA claimed.
If your installation costs less than £1 million and you have AIA headroom, claim the Annual Investment Allowance and take 100% in year one.
You reach the same place full expensing would have taken you. You get there under a different section, with a limit full expensing does not have, and — unlike full expensing — it is available to sole traders and partnerships as well as companies.
You cannot claim two allowances on the same expenditure. HMRC: a person “cannot claim multiple PMAs in respect of the same amount of expenditure”.
Where the distinction starts to bite
For a £40,000 rooftop array it does not matter much: AIA covers it, you get 100%, and the route is a footnote.
It matters in four cases.
You are spending more than £1 million, or have already used the AIA on something else. Then the excess goes to the 50% first-year allowance if you are a company and the equipment is new, and to a 6% writing down allowance if either of those fails. Six per cent on a reducing balance is slow — it takes about eleven years to relieve half the cost.
You are a sole trader or a partnership. Full expensing and the 50% FYA are both limited to companies subject to Corporation Tax. AIA is your route, and a partnership qualifies only where all its members are individuals.
The equipment is not new. Full expensing and the 50% FYA both require a new and unused asset. AIA does not, though it excludes items you owned for another reason before bringing them into the business.
You are buying to lease. Full expensing excludes an item bought to lease to someone else, unless it is background plant within a building. Solar on a let roof is a question worth putting to an accountant before signing anything.
What to ask your accountant
- Is the expenditure within our AIA headroom this period, after everything else we are claiming?
- If not, are we a company buying new equipment — so the 50% FYA is available on the excess?
- Is any part of this installation main rate rather than special rate, and can that be evidenced?
- How does the structure interact with a roof lease or a power purchase agreement, if one is involved?
- What happens on disposal or if we sell the building?
And what to say to an installer
If a quote or a brochure says you can claim full expensing on solar, it is not a reason to walk away — it is a reason to check everything else they have told you about tax, and to stop treating their tax figures as part of the case for the purchase.
The relief is usually available. It is just not that relief.
Sources
- Work out your writing down allowances: rates and pools Lists solar panels among the items on which only 6% relief may be claimed, and gives the main pool rate change from 18% to 14%.
- Check if you can claim full expensing or 50% first year allowances Last updated 30 September 2026. Companies subject to Corporation Tax only, expenditure on or after 1 April 2023, new and unused assets.
- Annual investment allowance The £1 million limit, and who may claim it.
- CA20008: interaction between different plant and machinery allowances HMRC's worked example uses solar panels and an electrical system, and treats both as eligible for the 50% first-year allowance, the AIA or special rate writing down allowances.
Contains public sector information licensed under the Open Government Licence v3.0.
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