Does solar qualify for full expensing?

The short answer is no. Solar PV does not qualify for full expensing. It is a common and understandable mistake, because full expensing is the headline capital-allowances relief and the assumption is that any big, eligible business asset must be covered. Solar sits in a different category, and the relief it does attract is governed by a separate set of rules. This guide explains why, what solar gets instead, and how the finance route you choose decides who keeps the relief.

Why solar does not get full expensing

Full expensing gives a company 100% relief in year one on qualifying main-rate (general pool) plant and machinery. The crucial word is main-rate. Full expensing only applies to assets that fall into the main capital allowances pool.

Solar panels do not. Under UK tax law, solar PV is treated as an integral feature of a building, which means it is special-rate expenditure and goes into the special-rate pool. Integral features include things like electrical systems, heating, lighting and, specifically, solar panels. Because full expensing is restricted to main-rate plant, special-rate assets are excluded by definition. This is not a quirk to argue with HMRC about — it is how the legislation is drawn.

So if a supplier or a finance ad implies you can “write off the whole cost in year one under full expensing”, treat it with caution. The relief exists, but the mechanism is different.

What solar does qualify for

Special-rate status does not mean weak relief. In practice most commercial solar projects still get full or near-full relief in year one through two routes that remain permanently available.

The Annual Investment Allowance (AIA)

The AIA gives 100% relief in the year of purchase on qualifying plant and machinery, including special-rate expenditure such as solar, up to £1 million per year. For the large majority of commercial solar projects — a typical commercial roof installation lands well inside that ceiling — the AIA delivers exactly the year-one write-off that businesses associate with full expensing, just under a different name. The AIA is a permanent allowance, not a temporary incentive due to expire.

The 50% first-year allowance (FYA)

For spend above the £1m AIA ceiling, companies can claim a 50% first-year allowance on the special-rate portion in year one, with the remaining 50% written down at the usual special-rate pool rate (currently 6% a year on a reducing-balance basis) in later years. The 50% FYA is also a permanent feature for companies, so a larger solar scheme still front-loads a substantial share of its relief.

Put simply: solar is excluded from full expensing but captured by the AIA and the 50% FYA. The destination — strong, often year-one relief — is much the same for most buyers. Our capital allowances guide sets out the figures and worked examples in more detail.

A worked illustration

Take a company spending £250,000 on a rooftop solar system, with full AIA capacity available for the year:

• The whole £250,000 is special-rate expenditure (integral feature).
• It cannot be claimed under full expensing.
• It can be claimed in full under the AIA, because it sits comfortably under the £1m annual limit.
• At a 25% corporation tax rate, 100% relief on £250,000 reduces the tax bill by roughly £62,500 in the year of claim.

The label “full expensing” never applies, yet the company still writes the full cost off against profit in year one. That is why the distinction matters more for accuracy than for outcome on most deals.

Who actually keeps the relief — this is the part that matters

The allowances above are only valuable to the party that owns the asset for tax purposes. This is where the finance structure becomes decisive, and it is the single most important point for a finance director to grasp.

• Hire purchase, an equipment loan, or cash purchase: the business owns the system, so the business claims the capital allowances. With hire purchase and an equipment loan you take ownership from the outset and the allowances sit with you.
• Finance lease: the lessor usually owns the asset and claims the allowances, passing the benefit back to you through lower rentals (unless it is a long-funding lease). The rentals themselves are deductible.
• Operating lease: you get no capital allowances as lessee, but the rental payments are an allowable deduction against profit.
• Power Purchase Agreement (PPA): the third-party funder owns the system, so the funder claims the allowances and also keeps the Smart Export Guarantee (SEG) income from electricity you do not use.

This is the core argument for owning your solar through asset finance rather than handing it to a PPA. Own it and you keep both the capital allowances and the SEG export income inside your own business. Under a PPA you typically buy the power and surrender both. We lay out the trade-off in full in our asset finance versus PPA comparison. If your business is profit-making and tax-paying, the value of those retained allowances is often the deciding factor.

VAT and the FRS 102 change

Two further points round out the picture. VAT on the equipment is reclaimable by VAT-registered businesses in the normal way — the domestic zero-rating for solar does not apply to commercial installs. With hire purchase or a loan you pay the VAT up front and reclaim it; with a lease the VAT is spread across the rentals.

On the accounting side, the revised FRS 102 brings most leases onto the lessee’s balance sheet for accounting periods beginning on or after 1 January 2026, with exemptions for short-term and low-value leases. That does not change the tax treatment of the allowances, but it does change how a financed system appears in your accounts and can affect covenant calculations — worth modelling before you commit to a structure.

Where this leaves you

Solar does not qualify for full expensing, but for most commercial buyers that is a technicality rather than a loss: the AIA delivers the same year-one 100% relief on spend up to £1m, and the 50% FYA covers the excess. The real decision is ownership. Choose a route where you own the asset and the allowances and export income stay with you; choose a PPA and they go to the funder. Grants and other support can sit alongside finance — see solar grants for business for what is genuinely available.

We are a specialist commercial solar asset-finance brokerage, not an installer, so our only job is to structure the funding so the tax position works in your favour. For an indicative structure and figures matched to your accounts and tax position, request a quote and we will model it properly before you commit.