Here is the sentence that saves you an awkward conversation with your accountant: solar panels are special-rate plant for capital allowances, and special-rate assets are excluded from 100% “full expensing” — whatever a brochure or a rival installer’s website may have told you. That is not the end of the good news, though; it is the start of the accurate version of it. A UK business buying commercial solar in 2026 still has two genuine routes to substantial year-one tax relief, and for most of the systems we install the better route is worth a full quarter of the capital cost back in reduced corporation tax. This article sets out both routes, with the working shown and the sources named — and with the standing caveat that we are electrical contractors stating public tax facts, not tax advisers: confirm your own position with your accountant, and we will give them the figures.
First, the trap — and why it exists
In 2023 the government introduced full expensing, since made permanent: a 100% first-year deduction for companies buying new plant and machinery — but only main-rate plant, and solar panels are not main-rate. Expenditure on them has been designated special-rate since April 2012 — HMRC’s Capital Allowances Manual says so in as many words — and special-rate assets are excluded from full expensing, receiving a 50% first-year allowance instead.
So when an installer’s website promises “deduct 100% of your solar investment through full expensing”, it is conflating the main-rate rule with a special-rate asset — and a business that budgets on it has mis-planned its tax. The irritating part is that a 100% year-one deduction on solar usually is available. It just comes through a different door.
Route one: the Annual Investment Allowance
The Annual Investment Allowance gives a 100% deduction in the year of purchase on qualifying plant and machinery, up to £1 million of expenditure a year — and unlike the first-year allowances, it covers special-rate assets, solar panels included, and it is available to sole traders and partnerships as well as companies.
For a typical commercial rooftop system, this is normally the better route. Take the worked 100 kWp example from our commercial solar page: an £80,000 installation, fully deducted from taxable profits in year one under the AIA, reduces a company’s corporation tax bill by up to £20,000 at the 25% main rate — and that single move is what takes the example’s payback from about seven years to a little over five.
One planner’s point your accountant will recognise: for a company, the AIA is most valuable when it is pointed at special-rate spending. Main-rate plant already has its own 100% route through full expensing, so burning AIA headroom on it wastes nothing if it is redirected — whereas special-rate assets like solar have no other way to a full year-one deduction. If the business is making mixed capital purchases in the same year, that allocation question is exactly the sort of thing worth an hour of professional advice.
Route two: the 50% special-rate first-year allowance
Where the AIA is unavailable or already used — a business spending past the £1 million cap across a big capital year, for instance — companies can claim the 50% special-rate first-year allowance on solar instead: half the cost deducted in year one, with the remaining half entering the special-rate pool and written down at 6% a year on a reducing balance from there. Like full expensing, this is a companies-only allowance and it, too, was made permanent in 2023 — but unlike the AIA it has no upper limit, which is why it matters most on the largest projects.
On the same £80,000 system, that is a £40,000 deduction in year one — up to £10,000 of corporation tax saved at the main rate — then £2,400 of the remaining pool relieved in the following year, and so on down the curve. All the relief arrives eventually; the AIA simply arrives faster, which is why we describe the 50% route as the fallback rather than the headline.
Who can claim what
- Companies paying corporation tax: AIA up to £1 million, or the 50% special-rate first-year allowance — and full expensing on their main-rate plant, which solar, as special-rate, is not.
- Partnerships and sole traders: the AIA. The first-year allowances are restricted to companies within the charge to corporation tax — a point that matters across the North East’s farming partnerships in particular, and one our farm solar article picks up.
- Landlords and tenants: genuinely fact-specific — fixtures rules, lease terms and leasing restrictions on first-year claims all bite. See the FAQ above, then see an adviser.
Two adjacent points to keep separate from allowances. Eligible onsite solar and storage is 100% exempt from business rates in England until 31 March 2035 — a different tax, applied automatically by the Valuation Office Agency, with nothing to claim. And VAT on a commercial installation is standard-rated (the domestic zero rate does not apply to business premises) and recoverable as input tax for VAT-registered businesses in the normal way.
What about battery storage?
Asked constantly, and we hold the line we hold on the battery page: unlike solar panels, which the legislation specifically classes as special-rate plant, battery storage has no single statutory answer — the treatment depends on how the system is bought and integrated. We deliberately do not publish a percentage for batteries. Put the configuration in front of your accountant and we will supply the specification and the itemised costs they ask for.
Our lane, and your accountant’s
We will not compute your tax return, and a good installer should not try. What we do is make the claim easy to get right: a survey-based, fixed, itemised quote that separates plant from works; the system specification your adviser needs; and numbers on this page that are sourced from gov.uk and HMRC’s manuals rather than from other installers’ marketing. If the tax treatment is the deciding factor for your project, start with how the payback maths works, run your own building through the calculator — it deliberately excludes tax effects, so the upside stays a genuine upside — and then ask us for the figures to take to your accountant. More questions answered straight on our FAQ page.