TL;DR — the relief is real, but it comes through AIA, not Full Expensing
A widely repeated error says commercial solar qualifies for Full Expensing. It doesn't: HMRC classifies solar panels as special-rate assets (CAA 2001 s.104A), and Full Expensing's 100% deduction only covers main-rate plant and machinery. The route that actually delivers 100% Year 1 relief on solar is the Annual Investment Allowance (AIA) — up to £1M of qualifying spend per year. At a 25% corporation tax rate that's still £250 back on every £1,000 of CAPEX: a typical £180,000 install generates £45,000 of Year 1 corporation tax relief, just claimed under the correct heading. Get the label wrong on your CT600 and you invite an HMRC enquiry; get it right and the cash effect is identical.
Does solar qualify? Yes — as a special-rate asset
Solar PV (panels, inverters, batteries, mounting) qualifies as plant and machinery, but sits in the special-rate pool (HMRC CA22335), not the main pool. Three practical caveats: (1) the company must be a UK corporation tax payer, (2) AIA requires the expenditure to be yours — a roof-mounted PPA where the funder owns the asset gives you no capital allowances at all, and (3) claim in the accounting period the asset is brought into use. Most KMM commercial deals are owned-asset, so AIA applies in full.
AIA first, 50% FYA for anything above £1M
AIA covers up to £1M of qualifying spend per year at 100% — which absorbs the entire CAPEX of almost every commercial solar project we install. If a project (or your total annual capex) pushes past £1M, the excess special-rate spend attracts the 50% first-year allowance instead, with the remainder written down at 6% a year. Full Expensing never enters the picture for the panels, inverters or battery — it only applies to main-rate assets. Sequence the claim with your accountant: AIA against the solar first, then FYA on any overflow.
Worked example: £180,000 install
Bakery client, 220 kWp + 80 kWh battery, £218k CAPEX excluding integral features (cabling = £14k under AIA). Year 1 Annual Investment Allowance (AIA) claim: 100% × £204k = £204k deduction. At 25% corporation tax: £51,000 tax saving. Plus £3,500 AIA on cabling. Total Year 1 tax relief: £54,500 on £218k spend. Net CAPEX after tax: £163,500. That cuts the payback from 5.8 years to 4.3 years.
Disposal — the trap nobody mentions
If you sell the asset later, there's a balancing charge. The disposal proceeds (or market value if not sold at arm's length) come back as taxable income. On a 25-year solar asset that depreciates to scrap, this is usually negligible. But if you sell the building with the solar still installed, expect HMRC to demand a market valuation. We see this happen on M&A — flag it to your accountant before sale.
Does it work alongside grants?
Yes — capital allowances apply to the net CAPEX after grant. A grant reduces the qualifying spend, and AIA applies to whatever the company actually paid. For example, a £100,000 system with a £25,000 grant leaves £75,000 of qualifying spend; at 25% corporation tax, AIA relief on it is worth £18,750.
Year 1 vs spreading across multiple years
AIA must be claimed in the period of expenditure — you can't hold it back for a better year. If your taxable profits in that year are smaller than the deduction, you create a loss to carry forward (relievable against future profits). For most commercial solar buyers, the install year creates a useful loss — particularly for SMEs with lumpy capex profiles.
Practical: when to start the install to maximise the tax relief
Two timing levers: (1) Position the install in the right accounting year (April–March or your own year-end). Most KMM clients align commissioning with end-of-year for clean tax treatment. (2) Document carefully — invoice date matters, not commissioning date, but you need the asset to be 'brought into use' in that period.
