When can you write off 100% of solar panel purchase cost?
Thinking about putting some spare capital to use and installing solar panels on your commercial building? If your system costs less than £1m, you can usually write off the whole cost in year one. Although it technically doesn’t qualify for full expensing as it’s a special rate asset, you use the AIA (annual investment allowance).
Let’s get your solar tax write-off clear.- Solar is plant and machinery, and qualifies for capital allowances. You can deduct the cost from taxable profit.
- The Annual Investment Allowance is the main route. It gives 100% relief in year one, up to £1 million a year, and covers most systems in full.
- Solar does not qualify for Full Expensing. It’s a special-rate asset, and Full Expensing applies only to main-rate plant. Claiming it risks a challenge.
- Above £1 million, companies use the 50% First-Year Allowance. Half in year one, the balance written down at 6%.
- The relief is worth your tax rate times the cost. For a company, that’s roughly 19% to 25% of the spend.
The short answer, and the myth
Yes. Solar PV counts as plant and machinery for tax purposes, so its cost can be set against taxable profits through the capital allowances system, and for most businesses the relief covers the entire installed cost in the first year.
What is not real is a claim you will see all over the internet, including from installers and finance brokers: that solar qualifies for 100% Full Expensing. It does not. Full Expensing applies only to main-rate plant and machinery, and solar panels are classified as special-rate assets, which are specifically excluded from it. The distinction is technical, but a business that claims Full Expensing on solar has filed an incorrect return and risks having the claim challenged and reversed by HMRC. The correct reliefs are just as generous in practice for most businesses.
The reliefs that apply to solar
Three capital allowances genuinely apply to commercial solar, and for the great majority of businesses the first one does all the work.
| Relief | What it gives | Solar? |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% in year 1, up to £1m a year | Yes, main route |
| 50% First-Year Allowance | 50% in year 1 (special rate) | Yes, above £1m |
| 6% Writing Down Allowance | 6% a year on the balance | Yes, the residue |
| Full Expensing | 100%, no limit, main rate only | No, excluded |
The Annual Investment Allowance lets a business deduct 100% of qualifying plant and machinery, including special-rate solar, in the year the spend is incurred, up to a permanent limit of £1 million a year. Since the vast majority of commercial installations cost well under £1 million, the AIA usually wipes out the whole cost against profit in a single year.
The 50% First-Year Allowance matters only when spending exceeds the £1 million AIA cap, on large projects or when other capital spend has already used the allowance up. It’s available to companies, lets them deduct 50% of the qualifying special-rate cost in year one, and sends the remaining 50% to the special-rate pool. That residue, and anything not covered by the AIA or the FYA, is written down at the 6% special-rate Writing Down Allowance, spreading the last of the relief over later years.
- Capital allowances
- Tax relief that lets a business deduct the cost of capital assets, such as solar, from its taxable profits.
- Plant and machinery
- The category of business assets capital allowances apply to. Solar PV counts.
- Special rate vs main rate
- The two pools of plant and machinery, relieved at different rates. Solar is special rate.
What the relief is worth
A capital allowance reduces your taxable profit, so its cash value is your tax rate multiplied by the deduction. For a company paying corporation tax, that’s roughly 19% to 25% of the spend, returned as tax you do not have to pay: a fifth to a quarter off the real cost of the system.
Here’s a straightforward example, well within the AIA and therefore relieved in full in year one.
The figures depend on your tax rate and on having enough taxable profit to absorb the deduction, but the principle holds, and the saving comes on top of the bill savings and any export income the system earns.
Who can claim
To claim, you need to be a UK business paying tax on profits, and you need to own the asset. The route and the value differ by business type.
| Business type | Route | Value set by |
|---|---|---|
| Limited company | AIA, plus 50% FYA above £1m | Corporation tax rate |
| Sole trader / partnership | AIA only | Income tax band |
| No taxable profit / most charities | Limited or none | – |
Sole traders and partnerships can use the AIA just as companies do, up to the same £1 million, but the company-only first-year allowances do not apply to them, and the value is set by their income tax band rather than the corporation tax rate. A business with no taxable profit to offset, or a charity that pays no tax, gets little or no immediate benefit, though losses can sometimes be carried forward.
Ownership matters too. Your business generally needs to own the panels, whether bought outright or on a qualifying hire-purchase agreement. Under a power purchase agreement, where a third party owns and operates the panels on your roof and sells you the power, it’s that provider, not you, who holds the asset, so the allowances are theirs. If capital allowances are part of your business case, that’s a real factor in choosing between buying and a PPA, a decision our guide to solar and data centres touches on for larger sites and our financing guide covers for the funding side.
The 2025 Budget, and what didn’t change
The Autumn 2025 Budget made changes to capital allowances that take effect in 2026, and for solar they mostly do not matter, precisely because solar is special rate. The headline measures, a new first-year allowance and a cut to the main-rate writing-down allowance, target the main-rate pool; special-rate solar sits outside them, so the AIA and the 50% First-Year Allowance apply exactly as before. If you have read that a new allowance sweetens the deal for solar, check carefully: the main-rate measures are not an alternative route for special-rate panels.
First, VAT: commercial solar is standard-rated at 20%, not the 0% that applies to domestic and charity-building installs until March 2027, though a VAT-registered business can usually recover it. Second, the old Enhanced Capital Allowances scheme for energy-saving equipment closed in 2020, so ignore any guidance that still points to it.
How and when to claim
The mechanics are handled by your accountant, but a few points shape the outcome.
- The claim goes in the capital allowances computation attached to your tax return, the CT600 for a company, for the accounting period in which the expenditure was incurred.
- Timing the spend can matter, for instance to land in a high-profit year or to spread large investment across AIA years, so plan it with your accountant.
- Keep clear evidence of the cost and the installation, so the qualifying expenditure is well documented.
- Have the treatment confirmed as special rate, not main rate, so Full Expensing is not claimed in error.
Frequently asked questions
Do commercial solar panels qualify for capital allowances?
Yes. Solar PV is plant and machinery for tax purposes, and the Annual Investment Allowance gives 100% first-year relief on the installed cost up to £1 million a year, which covers most commercial systems in full.
Do solar panels qualify for Full Expensing?
No. Full Expensing applies only to main-rate plant and machinery, and solar panels are special-rate assets, which are excluded. Use the AIA, or the 50% First-Year Allowance above £1 million.
How much is the tax relief worth?
Your tax rate times the deduction. On a £100,000 system fully relieved by the AIA, a company at 25% saves £25,000 in corporation tax, cutting the effective cost to £75,000.
Can a sole trader or partnership claim?
Yes, through the Annual Investment Allowance, up to the same £1 million, with the value set by their income tax band. The company-only first-year allowances, including the 50% FYA and Full Expensing, do not apply to unincorporated businesses.
Can I claim allowances on solar installed under a PPA?
Usually not. Under a power purchase agreement the provider owns the panels and sells you the electricity, so the capital allowances belong to them. To claim them yourself, your business generally needs to own the system.
Generous relief, if you claim the right one
Commercial solar earns real tax relief: for most businesses the Annual Investment Allowance delivers 100% of the cost against profits in the first year, worth a fifth to a quarter of the spend. The one thing to get right is the classification. Solar is a special-rate asset, so it does not qualify for Full Expensing, whatever the marketing says. Claim the AIA, or the 50% First-Year Allowance above £1 million, or risk an incorrect return. The 2025 Budget’s main-rate changes bypass solar, so the tried-and-tested AIA route remains the answer.
Run the numbers and the classification past a qualified accountant before you file. Done properly, capital allowances make one of the strongest cases for a business to go solar.
SOURCES: Capital allowances treatment per the Capital Allowances Act 2001 and HMRC guidance: AIA at £1m (permanent), 50% First-Year Allowance for special-rate assets (made permanent, Finance Act 2024), 6% special-rate WDA, and Full Expensing restricted to main-rate assets. Autumn Budget 2025 main-rate changes enacted in Finance Act 2026. Figures are illustrative and vary by circumstance.
DISCLAIMER: This guide is general information, not tax, accounting or financial advice. Capital allowances depend on your specific circumstances and on current HMRC rules, which change. Always confirm your position with a qualified accountant and gov.uk guidance before making a claim or a purchase decision.
UPDATED: 21 October 2026.
