Full Expensing and Commercial Solar: Why AIA Applies

What Full Expensing is — and why solar is excluded

Full Expensing lets companies deduct 100% of spending on new main-rate plant and machinery from taxable profits in the year of purchase, with no cap. Solar panels and battery storage are not main-rate plant: HMRC classes them as special-rate expenditure (Capital Allowances Act 2001, s.104A), so Full Expensing does not apply to them. Commercial solar gets its relief through the Annual Investment Allowance (AIA) instead — 100% of qualifying spend in year 1, up to £1m a year. For a company paying corporation tax at the 25% main rate, that reduces the effective cost by 25 pence per pound spent.

Both reliefs are permanent: the £1m AIA limit was made permanent from April 2023, and Full Expensing was made permanent in the Autumn Statement of November 2023. Commercial solar investment decisions can be planned with certainty that the relief will be there.

Worked example: £200,000 commercial solar PV

• Qualifying spend: £200,000
• AIA deduction in year 1: £200,000 (100%)
• Corporation tax saving at 25%: £50,000
• Effective net cost: £150,000

Illustrative figures for a limited company with enough taxable profit to use the deduction. Your actual system cost comes from a bespoke proposal after the survey.

What qualifies

• The solar PV panels themselves
• The inverter(s), battery storage (if installed simultaneously)
• Mounting frames, cabling, isolators and balance-of-system equipment
• Installation labour
• Monitoring equipment
• The associated electrical works (consumer-unit upgrades, DC isolators)

What does not qualify: ongoing operational expenses (maintenance contracts, panel cleaning, monitoring subscription fees) — these are deductible separately as ordinary business expenses.

AIA, and what applies above £1m

For solar PV the answer is almost always AIA: 100% relief in year 1 on up to £1m of qualifying spend, and most commercial solar projects sit well under that. If your total plant and machinery spend in the year goes above £1m, a company can claim a 50% first-year allowance on the special-rate spend above the limit, with the balance written down at 6% a year. Talk to your accountant before contract signature so the claim is filed correctly in the year of acquisition.

What KMM customers claim in practice

Across 2025-2026 KMM commercial customers, the most common Annual Investment Allowance (AIA) claim profile:

• System size: 80-300 kWp roof PV
• Gross capex: £65k-£260k
• CT saving: £16k-£65k
• Net effective payback: 25% better than the brochure-quoted gross capex payback

Who can't use this relief

• Sole traders and partnerships can still claim AIA up to £1m a year — the 50% first-year allowance above that is for companies only
• Charities, schools, NHS trusts and other non-CT-paying organisations (their finance route is Salix, PSDS, or PPA)
• Limited companies in tax losses (the relief carries forward but offers no immediate cash benefit)

The KMM commercial proposal

Every commercial proposal we issue models the Annual Investment Allowance into the year-1 ROI position. We ask for your CT rate at quoting stage and adjust the cash model accordingly. See request a commercial proposal.

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