50% First Year Allowance

In detail

The 50% First Year Allowance is the single most valuable tax incentive for commercial solar in the UK in 2026. For a profitable trading company paying corporation tax at the 25% main rate, it reduces the after-tax cost of a £200,000 solar investment by £25,000 in year one — that's 12.5% of the gross capital outlay, recovered as a cash tax saving. Combined with the 6% writing-down allowance on the remaining 50%, the total NPV of capital allowance reliefs is typically 18%–22% of the capital cost. The interaction with the Annual Investment Allowance (AIA) is important: the AIA gives 100% relief in year one on the first £1m of qualifying spend, but it has to be allocated across all capital expenditure that competes for it. Where AIA capacity is available, claiming AIA on solar spend is more valuable than the FYA — but most companies have other capital expenditure that already absorbs their AIA. The FYA fills the gap by giving 50% relief on top of whatever AIA capacity remains. The 31 March 2026 deadline matters in practice. Projects that commission after that date will (under current rules) only get standard 6% WDAs unless the legislation is extended. Commissioning timing is therefore a real economic variable for projects in the second half of 2025 and early 2026.

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Worked example

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Tax treatment / process

1. Capital expenditure is incurred and the asset is brought into use within the qualifying period
2. The expenditure is reflected in the company's accounting period
3. The 50% FYA is claimed on the tax computation (CT600) for that period
4. Supporting documentation retained: invoices, commissioning certificates, asset register entry
5. Remaining 50% added to the special-rate pool for ongoing WDA claims

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Pitfalls to watch

• Available only to companies (not sole traders or partnerships — but those have AIA)
• Asset must be new — second-hand systems do not qualify
• Asset must be brought into use, not just paid for — commissioning timing matters
• FYA is a deduction not a credit — if the company has no taxable profit, the allowance creates a loss that must be carried forward
• Connected-party transactions are scrutinised — buying from a parent company doesn't qualify
• The asset must be 'plant and machinery' — most commercial solar PV qualifies, but always confirm scope with your tax adviser

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Best paired with these finance structures