Annual Investment Allowance
100% deduction in year one on the first £1m of qualifying capital spend per accounting period.
100% of qualifying expenditure, capped at £1m per accounting period (the limit was made permanent at £1m from April 2023).
Permanent — no current end date. £1m annual limit per group.
In detail
The Annual Investment Allowance is the workhorse of UK capital allowance regime — a generous, broadly-available 100% year-one deduction on qualifying capital spend. For commercial solar, AIA is the most valuable allowance available where headroom exists. The reason FYA matters is that most trading businesses already have committed capital expenditure that absorbs their £1m AIA allocation: vehicle fleets, plant replacement, IT infrastructure, leasehold improvements. By the time solar PV gets considered, AIA capacity is often already allocated. In those cases, FYA is the next-best relief — 50% in year one is materially better than the 6% WDA that would otherwise apply. Where AIA capacity does exist, allocating it to solar typically gives the best after-tax economics: 100% year-one relief beats 50% FYA + 6% WDA on the residual. We model both scenarios in any project where it matters.
Who qualifies
Most UK businesses — companies, sole traders, and partnerships of individuals (but not partnerships with corporate members). Group companies share a single AIA limit.
What it does
Provides 100% tax relief in year one on qualifying plant and machinery expenditure, including commercial solar PV.
Worked example
On a £200,000 system, claiming AIA gives £200,000 deducted from taxable profits in year one. At 25% corporation tax, that's £50,000 of corporation tax saved — twice the year-one saving from FYA alone. However, £200,000 of AIA capacity is consumed, leaving £800,000 of headroom for other capital spend in the same accounting period.
Tax treatment / process
- Identify qualifying expenditure across all capex in the accounting period
- Allocate the AIA to the spend that benefits most (typically: highest-value, longest-life, or special-rate items)
- Claim on the corporation tax computation
- Any spend above the AIA limit goes into the relevant pool (special-rate pool for solar, main rate pool for general plant)
Pitfalls to watch
- Group companies share a single AIA — careful allocation is essential
- Connected businesses may be required to share the limit
- The limit applies per accounting period, not per asset — concentrating capex in one year can waste headroom
- Where AIA is available, claiming AIA on solar gives 100% year-one relief vs FYA's 50% — AIA wins if you have headroom
- Many trading businesses already use their AIA on other capital expenditure (vehicles, machinery, IT) — the FYA fills the gap
Best paired with these finance structures
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Frequently asked questions
What is the Annual Investment Allowance (AIA) for commercial solar?
Is AIA or the 50% FYA better for commercial solar?
Does the AIA apply to solar battery storage?
Can a public-sector body claim AIA on solar PV?
Annual Investment Allowance for commercial solar — detailed guide
The Annual Investment Allowance (AIA) provides 100% first-year tax relief on qualifying capital expenditure (plant and machinery) up to £1,000,000 per year. For commercial solar installations, the AIA is typically the most practical route to maximum first-year tax relief — simpler to apply than the 50% FYA and available to a broader range of business structures.
AIA eligibility for commercial solar
| Entity type | AIA eligible? | Notes |
|---|---|---|
| Limited company (CT payer) | Yes | Claims on CT600 in accounting period of expenditure; £1m limit applies per group/common control |
| Limited liability partnership (LLP) | Yes | AIA apportioned between LLP and individual partners for income tax purposes |
| Sole trader / individual (income tax) | Yes | Claims on Self Assessment; AIA applies to business portion of expenditure |
| Trust | Limited | Trusts can claim AIA on trading assets; investment trusts have restricted access |
| Charity (non-commercial) | No | Charities are generally exempt from corporation tax on charitable activities; no tax benefit from AIA |
| Local authority / NHS Trust | No | Public sector — not corporation tax entities |
£1m annual limit: planning for large installations
The £1m AIA limit per annum creates a planning consideration for large commercial solar installations:
£1m limit applies per group
Where a business is connected with other businesses under common control, the £1m AIA is shared across all connected entities — not £1m per company. A corporate group with 5 trading subsidiaries all under common ownership has a single £1m AIA to allocate across all 5 companies' capital expenditure. This can create a constraint on large solar programmes — where the solar cost across connected entities exceeds £1m in a single tax year, the FYA (50%, no monetary limit) becomes the more practical allowance for the excess.
Straddling year-ends: phasing expenditure
For installations close to (but above) the £1m AIA threshold, phasing the installation to straddle a year-end can effectively double the AIA available — £1m in year 1 and up to £1m in year 2. However, the "brought into use" test applies — assets cannot be claimed in a year they are not in use. Phasing the installation into two distinct commissioning stages (e.g., phase 1 in December, phase 2 in January of the following year) is the commercially clean solution, but requires installer co-operation and increases project management complexity.
AIA and the pool: what happens to expenditure above £1m
Capital expenditure above the AIA limit is not wasted — it enters the main pool at 18% WDA per annum (or special rate pool at 6% for some long-life assets and integral features). For a £1.5m solar installation, the AIA claims £1m in year 1; the remaining £500k enters the main pool. Year 2 WDA on £500k at 18% = £90,000 allowance. Year 3 WDA on remaining £410k at 18% = £73,800 allowance. The full cost is eventually relieved, just spread over 15+ years.
AIA vs FYA: combined usage strategy
The AIA and 50% FYA can be used in combination within the same accounting period. The optimal combination depends on the size of the installation and other capital expenditure in the period:
Installation under £1m: use AIA (100% relief)
For a solar installation costing under £1m, use the full AIA — claiming 100% relief in year 1 is materially better than the 50% + 18% WDA trail of the FYA. Only use FYA if the AIA limit has already been used by other capital expenditure in the same period.
Installation between £1m–£2m: AIA on first £1m, FYA on remainder
For a £1.5m installation, claim AIA on £1m (100% relief) and FYA on the remaining £500k (50% relief = £250k allowance in year 1, remaining £250k enters main pool). Total year-1 allowance: £1.25m of £1.5m cost = 83% of cost claimed in year 1.
Installation above £2m: AIA on first £1m, FYA on remainder
For a £3m installation: AIA on £1m = £1m allowance; FYA on remaining £2m = £1m allowance (50%); remaining £1m enters main pool at 18% WDA. Total year-1 allowance: £2m of £3m = 67% of cost. Remaining £1m relieved over subsequent years. With a 25% CT rate, year-1 tax relief on a £3m installation is approximately £500,000 (25% × £2m).
AIA worked examples for commercial solar 2026
The Annual Investment Allowance (AIA) gives 100% first-year tax relief on qualifying plant and machinery. For commercial solar PV, AIA is almost always the right allowance to claim — provided the business has sufficient taxable profits to absorb the relief in year one. The table below shows the AIA tax saving at different system sizes and tax rates.
| System size | Typical installed cost | AIA at 25% CT | AIA at 19% CT (small companies) | Net cost after CT relief |
|---|---|---|---|---|
| 50kWp | £42,500 | £10,625 | £8,075 | £31,875–£34,425 |
| 100kWp | £85,000 | £21,250 | £16,150 | £63,750–£68,850 |
| 200kWp | £168,000 | £42,000 | £31,920 | £126,000–£136,080 |
| 500kWp | £420,000 | £105,000 | £79,800 | £315,000–£340,200 |
| 1MWp | £840,000 | £210,000 | £159,600 | £630,000–£680,400 |
| 2MWp | £1,680,000 | £420,000 | N/A (at 25% rate) | £1,260,000 |
| 5MWp | £4,200,000 | £1,050,000 | N/A | £3,150,000 |
Note: AIA is capped at £1,000,000 per annum per single company (or per group). For systems above £1m installed cost, the balance above £1m is written down at 6% per year (special rate pool for integral features). This is why the 50% First Year Allowance (FYA) matters for systems above £1m — FYA can be applied to the excess beyond the AIA cap where AIA is already used on other plant.
What solar costs qualify for AIA?
| Cost type | AIA eligible? | Notes |
|---|---|---|
| Solar panels (modules) | Yes — 100% | Qualifying plant and machinery |
| Mounting structure (roof-mounted) | Yes — 100% | Mounting structure is integral to the plant |
| Inverters (string, central, hybrid) | Yes — 100% | Qualifying electrical plant |
| Cabling and wiring from array to inverter | Yes — 100% | Electrical installation qualifying as plant |
| DNO connection works (G99 application fee, cable from meter to DNO connection point) | Yes — usually | Must be plant/machinery not "installation" of infrastructure |
| Battery storage (co-located with solar) | Yes — 100% | Battery is qualifying plant; HMRC confirmed position 2023 |
| EV chargers co-located with solar | Yes — 100% | EV chargers qualify as plant separately; also qualify for EVCI grants |
| Scaffold and installation labour | No | Revenue cost — deductible but not via capital allowance |
| Professional fees (planning, structural survey) | No (usually) | Treated as incidental acquisition cost; added to pool value |
| Roof repairs carried out at the same time | No | Revenue deductible but not capital allowance |
| Solar canopy structure (where canopy is a structure not plant) | Partial — check structure vs plant boundary | Canopy frame may be structures allowance (3% SBA); panels and electrical kit within it qualify for AIA |
AIA vs 50% First Year Allowance (FYA): which is better?
| AIA | 50% FYA | |
|---|---|---|
| Rate | 100% in year one | 50% in year one (balance at 6%/yr SR pool) |
| Annual cap | £1,000,000 per company/group | No cap |
| Eligible assets | All qualifying plant & machinery | Energy-efficient plant only (solar qualifies) |
| Best for | Systems up to £1m installed cost | Systems above £1m OR where AIA already used on other plant |
| Tax saving on £500k system (25% CT) | £125,000 year one | £62,500 year one (+£3,750/yr in subsequent years) |
| Tax saving on £2m system (25% CT) | £250,000 year one (only £1m AIA-claimable) | £250,000 year one (50% × £2m × 25%) |
| Claim timing | Can be claimed in partial amounts — spread if useful for tax planning | All or nothing within year (but excess carries to pool) |
Rule of thumb: AIA vs FYA decision
AIA is usually the better choice for systems up to £1m installed cost — 100% write-off is faster and simpler than 50% + 6%/yr. For systems above £1m, or where you have already used £1m of AIA on other capital expenditure in the same accounting year, FYA picks up the excess. Many businesses with large solar investments (500kWp+) use AIA up to £1m and FYA on the balance. Get your accountant to confirm the optimal split based on your accounting year end and projected taxable profit.
AIA claim process: how to claim on a commercial solar investment
| Step | What it involves | Who does it | Timing |
|---|---|---|---|
| 1. Commission the system | MCS-accredited installer completes installation, commissioning and G99 DNO notification | Solar installer | On site completion (practical completion date) |
| 2. Receive all invoices | Installer issues final invoice with VAT breakdown; DNO may issue separate connection cost invoice | Finance director/accounts payable | At or after practical completion |
| 3. Add to capital expenditure register | Solar system added to company's fixed asset register at cost (excluding VAT if VAT-registered) | Company accountant / finance director | Within accounting period of installation |
| 4. Identify AIA pool | Allocate solar costs to AIA pool (not SR pool) in tax computation. Confirm asset type is qualifying plant not structure. | Tax adviser / accountant | When preparing CT600 computation |
| 5. Claim AIA on CT600 | Complete CT600 supplementary pages (CT600A for capital allowances); claim AIA up to £1m cap; apportion across group members if applicable | Accountant preparing CT600 | 9 months after accounting year end (filing deadline) |
| 6. HMRC enquiry (if any) | HMRC may enquire into the capital allowance claim — typical triggers: very large claim, asset installed at year end, mixed structure/plant. Keep MCS certificate, final invoice, DNO confirmation and asset register entry. | Finance director with tax adviser | Within 12 months of filing (HMRC enquiry window) |
AIA and corporation tax rates 2026
Since April 2023, UK corporation tax has two rates: 19% for profits under £50,000 and 25% for profits over £250,000, with marginal relief between £50,000 and £250,000 at an effective rate of 26.5% on marginal profits. This matters for AIA planning on commercial solar because:
| Profit level (before AIA claim) | CT rate on solar saving | AIA relief value on £500k solar | Net cost after CT relief |
|---|---|---|---|
| Over £750,000 (main rate: 25%) | 25% | £125,000 | £375,000 |
| £300,000–£750,000 (marginal relief band: ~26.5% effective) | 26.5% | £132,500 | £367,500 |
| Under £50,000 (small profits rate: 19%) | 19% | £95,000 | £405,000 |
| Associated company rules | Applies | AIA shared between associated companies if under common control | Critical for group structures investing in solar across multiple subsidiaries |
Can I claim AIA on solar panels installed on a rented building?
Yes — provided you are the occupier (not the landlord) and the solar system is your qualifying plant and machinery. If the landlord owns the solar system (e.g., a rooftop licence arrangement where the landlord pays), the landlord claims the AIA. If you fund the system yourself and have an agreement to remove or pay for it at lease end, you claim the AIA. Get your lease reviewed by a tax adviser if the ownership position is unclear — this is the most common AIA solar dispute area.
What happens to unclaimed AIA when a business has a loss year?
If you claim AIA but have insufficient taxable profit to absorb it fully, the unused capital allowance increases your tax loss. Tax losses can: (a) be carried back one year against profits (CT charge refund — useful for cash), or (b) be carried forward indefinitely against future profits. There is no time limit on carrying forward capital allowance losses. If you expect a loss year, consider delaying the solar installation to the next accounting year when profits recover — the AIA benefit is most valuable when there are profits to offset it against.
Do groups of companies share one AIA limit?
Yes. Associated companies under common control share one £1,000,000 AIA limit, typically allocated between group members based on each member's capital expenditure. This is critical for property groups or manufacturers with multiple subsidiaries all investing in solar: the group should agree an AIA allocation strategy before each subsidiary proceeds to order. HMRC anti-avoidance rules apply to artificial splitting of entities to circumvent the AIA cap.
Is VAT charged on commercial solar installations?
Solar installations on commercial (non-domestic) buildings attract standard-rate VAT at 20%. VAT-registered businesses can reclaim this in their next VAT return — typically within 30 days. Businesses not registered for VAT bear the VAT as an additional cost (add 20% to the installed price). The installed cost figure used for AIA calculation is the ex-VAT cost only (for VAT-registered businesses).
Related: tax incentives and capital allowances for solar
- 50% First Year Allowance (FYA) | AIA vs FYA Decision Guide
- Commercial Solar Tax Savings | All Three Reliefs in One Place
- CCL Exemption | Save on Climate Change Levy Too
- Green Loan + AIA | Borrow and Still Claim 100% Relief
- Hire Purchase + AIA | HP Buyer Claims the Allowance
- Case Studies | See Real AIA Savings in Action
The Annual Investment 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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