50% First Year Allowance
Lets a profit-making company write off half the capital cost of new commercial solar against corporation tax in year one.
50% of qualifying capital cost in year one. At the 25% main rate of corporation tax, that's £125 saved for every £1,000 of qualifying spend, in the first year.
Currently extended to 31 March 2026. Government has signalled intention to consider permanent treatment but no commitment confirmed at time of writing.
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.
Who qualifies
UK companies subject to corporation tax. Available for new (not second-hand) special-rate plant and machinery, including solar PV, installed in the qualifying period.
What it does
Allows 50% of the qualifying capital expenditure to be deducted from taxable profits in the year the spend is incurred. The remaining 50% goes into the special-rate capital allowance pool and attracts 6% writing-down allowances per year on a reducing-balance basis.
Worked example
On a £200,000 250kWp system: £100,000 deducted in year one. At 25% corporation tax, that's £25,000 less corporation tax payable in year one. The remaining £100,000 enters the special-rate pool and attracts £6,000 of WDA in year two, £5,640 in year three, and so on. Total tax relief over the asset life: roughly £40,000–£50,000 in NPV terms.
Tax treatment / process
- Capital expenditure is incurred and the asset is brought into use within the qualifying period
- The expenditure is reflected in the company's accounting period
- The 50% FYA is claimed on the tax computation (CT600) for that period
- Supporting documentation retained: invoices, commissioning certificates, asset register entry
- Remaining 50% added to the special-rate pool for ongoing WDA claims
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
Best paired with these finance structures
Capital Purchase
Pay cash, own the asset, claim the full tax relief — the simplest structure and almost always the mo…
Green Loans
Borrow against the project, retain ownership, smooth the cash impact — green loans typically charge …
Finance Lease
Functionally similar to a loan — you pay over time, the asset hits your balance sheet, and you keep …
Asset Finance
Catch-all category for hire purchase, equipment finance, and similar structures aimed at SME-scale s…
Frequently asked questions
What is the 50% First Year Allowance for commercial solar?
How long has the 50% FYA been extended?
Can I claim the 50% FYA on a solar operating lease?
Can I combine the 50% FYA with a green loan?
What happens to the remaining 50% not covered by the FYA?
50% First Year Allowance for commercial solar — comprehensive guide
The 50% First Year Allowance (FYA) for energy-saving plant and machinery was extended in the 2026 Budget and remains one of the most powerful tax incentives available for UK commercial solar investment. For a 25% corporation tax payer, the FYA reduces the effective upfront cost of a solar installation by 12.5% of the total system cost — a material contribution to the project's investment case.
How the 50% FYA works: mechanics
The allowance calculation
In the accounting period in which the solar asset is first brought into use, the business can claim 50% of the qualifying asset cost as a First Year Allowance. This creates a deduction against taxable profit in that period. The remaining 50% enters the main writing-down allowance (WDA) pool at 18% per annum on the reducing balance. Importantly, the FYA is not a cash grant — it is a reduction in taxable profit, worth (at the full 25% CT rate) 12.5 pence per £1 of qualifying expenditure in the year claimed.
Qualifying expenditure
Solar PV modules, inverters, mounting systems, electrical cabling and switchgear, monitoring hardware, and battery storage systems co-installed with the solar all qualify for the 50% FYA. G99 protection relays, access equipment permanent to the installation, and structural reinforcement works directly attributable to the solar installation also qualify. DNO application fees and commissioning costs are revenue expenditure (deductible immediately in full) rather than capital — they do not qualify for FYA but reduce taxable profit in the period of expenditure.
The "brought into use" requirement
The FYA is claimable in the accounting period in which the asset is first brought into use — not when it is purchased or delivered. An asset purchased in March 2026 but commissioned and first generating electricity in April 2026 is "brought into use" in the accounting period that includes April. If your year-end is 31 March, the FYA for the April commissioning would fall in the following year. Plan the project timeline to align commissioning with the most tax-advantageous accounting period — particularly for businesses approaching a year-end where high taxable profit makes early FYA claim especially valuable.
FYA vs AIA — which should you claim?
| Criterion | 50% FYA | 100% Annual Investment Allowance (AIA) |
|---|---|---|
| % of cost claimable in year 1 | 50% | 100% (up to AIA annual limit of £1m) |
| Annual limit | No monetary cap | £1m per annum per business/group |
| Asset types | Qualifying energy-saving or low-emission assets only | Most plant and machinery (not cars) |
| Remaining balance (after year-1 claim) | 50% enters main pool at 18% WDA | No remaining balance — 100% claimed upfront |
| Best for | Installations above £1m total where AIA is exhausted; or when only partial first-year claim is preferred | Smaller installations (below AIA limit); when maximum year-1 relief is the priority |
| Interaction with finance (HP) | Both claimable on HP-financed assets under s.67 CAA | Both claimable on HP-financed assets under s.67 CAA |
For most commercial solar installations under £2m, AIA is simpler and more beneficial — 100% upfront allowance versus 50% + 9% WDA trail. FYA becomes more relevant for larger installations where the AIA limit has been used elsewhere, or where the business specifically wants to use the energy-saving qualifying route.
FYA claim procedure
Company tax return (CT600)
The FYA is claimed on the CT600 corporation tax return in box 835 (first year allowance). Supporting schedules must show: asset description, date brought into use, cost, and FYA percentage claimed. Capital allowance computations are submitted as supplementary pages to the return. The HMRC portal (HMRC Online) or the business's accountant typically prepares these schedules as part of the annual accounts and tax return process.
Required documentation
To support an FYA claim, retain: the installer's VAT invoice (showing asset cost, VAT treatment, and installation date); the commissioning certificate (MCS or equivalent, confirming the date the system was commissioned and first generating); any structural engineer's report attributing additional structural costs to the solar installation; and the DNO G98/G99 connection confirmation letter.
HMRC enquiry risk
FYA claims for commercial solar are straightforward and low enquiry risk when properly documented. HMRC's Capital Allowances Manual (CA23135) confirms solar PV as qualifying energy-saving technology. The most common compliance issue is incorrectly including non-qualifying items (e.g., roof repairs or structural works that would have been needed regardless of the solar installation) in the FYA claim — these should be separately identified and claimed as revenue repairs if they qualify, or capitalised without FYA if capital improvements.
2026 Budget extension: what changed
The Chancellor's 2026 Budget announcement confirmed that the 50% FYA for qualifying energy-saving plant and machinery is extended for a further 3 years. Key clarifications from the Budget documentation:
Extended to 2029
The 50% FYA for energy-saving plant and machinery (under the Energy Technology List criteria) is extended to April 2029. Businesses planning solar installations from 2026–29 can plan with certainty that the FYA will be available at current rates. The government's stated aim is to maintain the tax incentive through the period of accelerated UK commercial solar deployment needed to meet the 2030 power sector targets.
Battery storage clarification
The 2026 Budget technical notes clarified that co-located battery storage systems (installed at the same time as, or within 12 months of, a qualifying solar installation) qualify for the 50% FYA under the energy-saving plant and machinery rules. Standalone battery storage (not associated with a solar installation) may qualify under the capital allowances regime but the FYA qualification is less clear — seek specific tax advice for standalone BESS projects.
The 50% First Year Allowance is one of the capital allowances available on commercial solar. For the complete picture — how AIA, the 50% First Year Allowance and the Structures & Buildings Allowance fit together, who can claim, and how to claim — see our parent guide: Capital Allowances on Solar Panels.
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