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Commercial Solar Finance UK · Independent
Q&A · Tax savings

Commercial solar tax savings — UK 2026 detailed guide

UK commercial solar tax savings come from four mechanisms: the 50% First Year Allowance (FYA), Annual Investment Allowance (AIA), special-rate pool writing-down allowances, and Smart Export Guarantee (SEG) income. Combined, they typically deliver a 17-25% effective discount on capex for profitable trading companies — the single largest economic driver of commercial solar economics in 2026.

The four tax mechanisms

1. 50% First Year Allowance (FYA)

Time-limited to 31 March 2026. Allows 50% of qualifying capital expenditure to be deducted from year-1 taxable profits. At 25% main rate, that's 12.5p per £1 of capex — for a £200k system, £25k of year-1 corporation tax saved. Remaining 50% goes into special-rate pool.

50% FYA detailed page →

2. Annual Investment Allowance (AIA)

100% deduction in year 1 on the first £1m of qualifying capital expenditure per accounting period. Where AIA headroom is available (not used by other capex), claiming AIA gives stronger year-1 tax relief than FYA. £200k system at 25% main rate = £50k year-1 tax saving via AIA vs £25k via FYA.

AIA detailed page →

3. Special-rate pool (SRP)

6% writing-down allowance on a reducing-balance basis on the residual capex (50% of capex if FYA claimed, 0% if AIA fully claimed). Lifetime SRP value: ~£12-15k present value on a £200k system at 25% main rate. Long tail — declining balance over 15+ years.

4. Smart Export Guarantee (SEG)

Mandatory tariff payable by large UK electricity suppliers on solar exported to the grid. Tariffs vary 5-15p/kWh depending on supplier. On typical 8% export, worth £600-1,500/year on a £200k system — additional revenue, not strictly a tax saving but contributes to total project economics.

SEG detailed page →

Combined tax savings: worked example

For a £200,000 250 kWp commercial solar system on a profitable UK trading company at the 25% main rate, accounting period ending before 31 March 2026, no AIA headroom available (AIA used by other expenditure):

Tax mechanismYear claimedTax saving
50% FYAYear 1£25,000
SRP year 1 (6% × 50% × 25%)Year 1£1,500
SRP year 2-15 (declining balance)Years 2-15~£11,000 cumulative
Total tax savings (PV)Lifetime~£37,500
Effective discount on capex—18.75%

AIA-route alternative

If AIA headroom is available for the same £200k system:

Tax mechanismYear claimedTax saving
AIA (100% × 25% × £200k)Year 1£50,000
SRP (none — fully claimed via AIA)N/A£0
Total tax savings (PV)Year 1£50,000
Effective discount on capex—25.0%

AIA route delivers stronger year-1 cash than FYA + SRP route. AIA is preferred where headroom is available; FYA fills in beyond the £1m AIA cap or where AIA is exhausted by other capex.

Related questions

Can I claim FYA and AIA on the same project?
On the same expenditure line, no — they're alternatives. Across a single project though yes — claim AIA on the first £1m of qualifying expenditure, then FYA on amounts above £1m. Optimisation matters for large projects (£1m+).
What's the corporation tax saving at 19% small profits rate?
Linearly proportional. £200k system at 19% rate: FYA saves £19k year-1 (vs £25k at 25%); AIA saves £38k year-1 (vs £50k at 25%). Effective discount on capex is 14% (FYA route) or 19% (AIA route) at the small profits rate. Still strong economics — just not as strong as main-rate companies.
When is the FYA expiring?
31 March 2026 unless extended in the next Budget. Capex incurred before that date qualifies (system commissioned by year-end falling on or before 31 March 2026). After the deadline, capex flows entirely to special-rate pool at 6% writing-down — same value but spread over 15+ years instead of year 1.
Do I lose tax savings if I use green loan or asset finance?
Generally no. Green loan keeps you as legal owner from day 1 — full FYA / AIA capture. Asset finance hire purchase: progressive title transfer but tax law treats lessee as having tax ownership from outset — full FYA / AIA capture. Operating lease and PPA: lessor / developer captures, prices into rent / tariff but you don't see it on your tax return.
Can charities claim FYA / AIA on solar installations?
Generally no. Charities are exempt from corporation tax on most income, so FYA / AIA — both reductions against taxable profits — have no value to the charity entity. Trading-subsidiary structures can capture allowances if a separate trading company owns the asset. PPA structure works around the constraint by having the developer capture allowances.

Continue reading

50% FYA detailed page

Mechanics, deadline, worked examples, qualifying expenditure rules.

AIA detailed page

When AIA wins over FYA, headroom checking, optimisation strategy.

AIA vs FYA detailed comparison

Worked numbers across project sizes showing where each route wins.

Want this applied to your specific situation?

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