Full Expensing for office solar capex

Full Expensing was introduced in March 2023 as a temporary measure and made permanent in 2024. For limited companies (not partnerships or sole traders), it provides a 100% first-year deduction on qualifying main-pool plant and machinery. Special-rate pool assets are excluded from full expensing's 100% rate; a separate 50% first-year allowance applies to them instead.

Solar PV typically falls into the special-rate pool — so full expensing's 100% deduction does not apply to it. Instead the separate 50% first-year allowance covers special-rate assets, giving a 50% deduction in year one with 6% writing-down allowance thereafter. For a £300,000 office solar install at 25% corporation tax, that 50% first-year allowance delivers £37,500 of year-one tax relief, with further relief tapering over subsequent years — but AIA (below) is the better route for solar.

For most UK office solar projects, AIA is more valuable because (a) its 100% deduction is stronger than the 50% special-rate first-year allowance solar would otherwise attract, and (b) AIA can be claimed alongside other reliefs. Limited companies typically only fall back on the 50% special-rate allowance when their £1m AIA allowance is exhausted by other purchases in the same year.

Combined AIA + special-rate allowance strategy: for businesses with multiple major capex purchases, the optimal stack is to apply AIA to the highest-relief assets (typically equipment with shorter writing-down lives) and then the relevant first-year allowance to the remainder — the 50% special-rate allowance for solar and other SRP assets, or full expensing's 100% for main-pool assets. We work with your tax adviser to confirm the optimal claim strategy as part of the proposal.

Full Expensing vs AIA: which is better for office solar?

Solar PV falls into the Special Rate Pool (SRP), so full expensing's 100% rate does not apply to it — the relief solar would otherwise attract is the separate 50% special-rate first-year allowance. AIA is stronger still: it provides a 100% first-year allowance on the same SRP assets, up to the £1m cap. For most UK office solar projects in 2026 AIA therefore delivers the greatest year-one relief. The difference is significant on a typical install.

On a £300k office solar project:

• AIA route: £300k × 100% × 25% CT rate = £75,000 year-one tax saving
• 50% first-year allowance route: £300k × 50% × 25% CT rate = £37,500 year-one tax saving; remaining 50% at 6% WDA thereafter

The 25-year cumulative relief is identical — both routes eventually deduct 100% of the asset cost. But AIA delivers the relief ~15 years earlier, dramatically improving NPV. The IRR differential on a 320 kWp install is typically 4-6 percentage points.

For solar, the 50% special-rate first-year allowance becomes the relevant fallback in one scenario: where a limited company has exhausted its £1m AIA annual cap with other qualifying capex in the same year. Sole traders and partnerships cannot claim full expensing or the 50% first-year allowance at all — both are companies-only — so AIA remains their sole first-year route.

Full expensing, the 50% allowance and office solar: what qualifies?

Solar PV is special-rate (SRP) spend, so full expensing's 100% main-pool rate does not apply to it — the separate 50% first-year allowance is what covers these assets (and AIA is the 100% route up to £1m). The qualifying items mirror AIA: solar panels, inverters, mounting racking, cabling, monitoring hardware, and incorporated installation labour.

Battery storage sits in the same SRP category. Whether a BESS attracts the 50% special-rate first-year allowance or qualifies as a main-pool asset (where full expensing's 100% rate applies) depends on how HMRC classifies it. If the battery is an integral part of the solar generation asset (as it typically is for on-site solar self-consumption systems), it follows the solar classification into the special-rate pool at the 50% first-year allowance. Batteries used primarily for grid trading may be treated differently — confirm with your tax adviser on systems over 100 kWh.

Full Expensing and leased / PPA-financed systems

Like AIA, full expensing — and the separate 50% special-rate first-year allowance — applies only to owned assets. Under a power purchase agreement (PPA) or operating lease, the solar asset remains on the supplier's balance sheet and they claim the capital allowances. Customers under a PPA deduct lease payments as revenue expenditure — a different but often equivalent economic outcome, particularly relevant for companies wanting to treat solar costs as operational rather than capital spend.

For companies choosing cash purchase specifically to maximise capital allowance benefit, the decision is straightforward: claim AIA first (100%), then use the 50% special-rate first-year allowance for any solar/SRP overage above the £1m AIA cap (full expensing's 100% rate covers only main-pool assets, not solar). The combined effect can be modelled in our financial proposal alongside the PPA comparator — allowing you to see the post-tax IRR of each route side-by-side.

Common questions: full expensing, the special-rate pool and office solar

Is Full Expensing available to partnerships?

No. Full Expensing is available only to companies within the charge to corporation tax. Sole traders, partnerships, and LLPs use AIA as their primary first-year relief route.

Does Full Expensing apply to second-hand equipment?

No. Full Expensing applies to new and unused assets only. Buying a second-hand inverter or reconditioned panels would not qualify; only new plant and machinery is eligible.

Can we claim first-year allowances on a solar system installed in phases?

Yes — solar sits in the special-rate pool, so it's AIA at 100% within the £1m cap, or the separate 50% special-rate first-year allowance beyond it (full expensing's 100% rate does not apply to solar) — but relief is taken in the period in which each phase is brought into use. If phase one (200 kWp) commissions in March 2026 and phase two (120 kWp) in January 2027, each phase's expenditure is claimed in the respective accounting period.