Annual Investment Allowance

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.

---

---

Worked example

---

Tax treatment / process

1. Identify qualifying expenditure across all capex in the accounting period
2. Allocate the AIA to the spend that benefits most (typically: highest-value, longest-life, or special-rate items)
3. Claim on the corporation tax computation
4. 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