# Capital allowances on commercial solar: AIA and the 50% first-year allowance

If your business buys a commercial solar system, it can usually claim capital allowances on the cost — reducing your taxable profit. Solar is special rate expenditure, so the Annual Investment Allowance usually does the work, with the 50% first-year allowance available to companies above it. Full expensing does not apply to solar. Always confirm the treatment with your accountant.

## What are capital allowances?

Capital allowances let a business deduct the cost of qualifying assets — such as plant and machinery — from its taxable profits. Solar PV and battery systems are generally treated as plant and machinery, so the money you spend on them can reduce your tax bill rather than sitting on the balance sheet with no relief.

## Which allowances can apply to solar?

HMRC designates all capital expenditure on solar panels as special rate expenditure, and that classification decides what is available. The Annual Investment Allowance gives 100% relief on qualifying spend up to £1 million a year and can be claimed on special rate plant, so it covers most commercial projects outright. Above the AIA, a company may be able to claim the 50% first-year allowance on new and unused special rate plant, with the balance written down at 6% a year. Full expensing is not available on solar, because special rate expenditure does not qualify for it. Confirm the detail with your accountant.

## How funding affects your claim

To claim capital allowances you generally need to own the asset. Buying outright (CapEx) or funding through hire purchase both let you claim, because you own the system (with HP, at the end of the agreement). Under a PPA the provider owns the system, so you would not claim allowances yourself — instead you benefit from a lower energy rate with no capital outlay.

## Frequently asked questions

**Can I claim capital allowances on solar under a PPA?**

No — under a PPA the provider owns the system, so they hold the asset, not you. You benefit through a lower energy rate and zero upfront cost. To claim allowances yourself, you would buy outright or use hire purchase. We can compare both on our funding options page.

**Does solar qualify for full expensing or the new 40% first-year allowance?**

No to both. HMRC designates solar as special rate expenditure, and special rate expenditure does not qualify for full expensing or for the 40% first-year allowance introduced from January 2026, which is for main rate expenditure. The Annual Investment Allowance and the 50% first-year allowance are the routes that do apply — see our guide on the 40% first-year allowance for the detail.

**Does battery storage qualify too?**

Battery storage is generally treated as plant and machinery alongside solar, so similar allowances can apply when you own it. As with all tax matters, confirm the specifics with your accountant.

## Sources & further reading

- [HMRC Capital Allowances Manual CA22335 — solar panels are special rate expenditure](https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca22335)
- [HMRC Capital Allowances Manual CA23174AA — special rate expenditure and full expensing](https://www.gov.uk/hmrc-internal-manuals/capital-allowances-manual/ca23174aa)
- [GOV.UK — Check if you can claim full expensing or 50% first-year allowances](https://www.gov.uk/guidance/check-if-you-can-claim-full-expensing-or-50-first-year-allowances)
- [GOV.UK — Capital allowances: rates and pools](https://www.gov.uk/work-out-capital-allowances/rates-and-pools)

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Source: [Capital allowances on commercial solar: AIA and the 50% first-year allowance](https://ppafunding.com/guides/capital-allowances-on-commercial-solar) · Author: PPA Funding team · Updated: 2026-07-30

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