Full Expensing and Commercial Solar: How Tax Relief Works

Why the relief comes through AIA

Full Expensing — the 100% first-year deduction for companies — only covers main-rate plant and machinery. Solar panels and batteries are special-rate expenditure, so they are excluded. The relief that does apply is the Annual Investment Allowance (AIA): a 100% first-year deduction on up to £1m of qualifying spend a year, permanent since April 2023 and open to sole traders and partnerships as well as companies. Businesses investing in commercial solar can plan with certainty that the relief will be there.

How it works for a £200k commercial solar install

A limited company paying 25% corporation tax that installs a £200,000 commercial PV system in financial year 2026:

• Capex deducted from taxable profits in year 1: £200,000
• Corporation tax saving: 25% × £200,000 = £50,000
• Effective net capex: £150,000

That £50,000 of tax saving is what makes a 7-year nominal payback land at 5-year actual payback for most KMM commercial installs. It is also why we ask for your CT rate and current-year profit position at quoting stage — it is the difference between a quote that gives you the headline payback and one that gives you the actual payback for your situation.

What if you spend more than £1m in a year?

Most KMM commercial customers spend well under £1m a year on plant and machinery, so AIA covers the whole system. If your spend goes above the limit, a company can claim a 50% first-year allowance on the special-rate spend above £1m, with the rest written down at 6% a year. Talk to your accountant before contract signature so the claim lands in the right year.