The 2026 Budget and the 50% FYA: what changed and what it means for commercial solar

The 2026 Budget extended the 50% First Year Allowance for commercial solar PV to 31 March 2026, with the special-rate pool mechanics for the residual 50% unchanged. For most profitable corporation-tax-paying companies considering commercial solar, this is the most consequential line in the document. We unpick it with working numbers below — what changed, what didn't, and what it should mean for decisions through to the deadline.

What the FYA actually does

The 50% FYA allows a profit-making company to deduct half of qualifying capital expenditure on new commercial solar PV from taxable profits in the year the asset is brought into use. The remaining 50% is added to the special-rate capital allowance pool, attracting 6% writing-down allowances annually thereafter. At the 25% main corporation tax rate, the year-one cash benefit is 12.5p per £1 of qualifying spend, with the residual special-rate pool worth a further 1.5p in year two declining over the asset's tax life.

For a £200,000 commercial system, that's £25,000 of corporation tax saved in year one and a further ~£12,000–£15,000 of present-value tax savings spread across the special-rate pool. Total lifetime tax value: roughly £38,000–£40,000 against the £200,000 spend, or 19–20% effective discount on capex.

What the extension actually changed

In substance, very little. The Budget kept the FYA at 50% rather than letting it expire. It did not extend it indefinitely — the deadline now reads 31 March 2026 rather than the previous 31 March 2025. The qualifying expenditure definition is unchanged (new and unused commercial solar PV, including ancillary plant where the predominant function is electricity generation for the business). The interaction with the AIA is unchanged.

The unwritten message: the Treasury continues to treat the FYA as a time-limited stimulus rather than a permanent feature of the tax system. Each successive extension has been short. Plan around the deadline, not on the assumption it extends again.

The year-one cash impact for typical project sizes

What this means for year-end planning

For companies with year-ends between 30 April 2025 and 31 March 2026, the FYA captures against the relevant year's taxable profits provided the system is brought into use before year-end. "Brought into use" generally means commissioned and producing electricity — not just delivered to site or installed but uncommissioned. Lead times for typical commercial systems run 12–20 weeks from order, with G99 commissioning adding another 2–6 weeks where DNO inspection is required. Working backwards: orders placed by November 2025 will close in time for an end-March 2026 commissioning; orders placed in January 2026 are tight.

Companies with year-ends after 31 March 2026 lose the FYA on the qualifying expenditure but retain the 6% special-rate writing-down allowance in perpetuity. The economics are still strong, but the year-one cash benefit goes from £25,000 (£200k system) to £3,000 — a meaningful difference for cash-flow planning.

The interaction with AIA

A common confusion: the 50% FYA and the £1m Annual Investment Allowance both apply to commercial solar, but they are not stackable on the same expenditure. Where AIA headroom is available for the period, claiming the full £1m AIA allowance produces stronger year-one tax relief (£250,000 saved vs £125,000 from FYA on a £1m system). The decision tree:

If qualifying capital spend for the period is under £1m and AIA headroom is available: claim AIA, get 100% relief in year one. Forget the FYA — it's only useful where AIA is not available.

If qualifying capital spend for the period exceeds £1m or AIA is exhausted by other expenditure: claim AIA on the first £1m of qualifying spend, then claim FYA on the remainder above £1m. Both allowances combine on the same project where total spend exceeds the AIA cap.

Always confirm with your accountant. The interaction between AIA, FYA, and the special-rate pool depends on your wider expenditure for the period. The above is general — your specific position needs an actual accountant.

What we're telling clients

The decision matrix we're running for clients in 2026 is uncomplicated: if your trading position is profitable, your year-end is before 31 March 2026, and the project is technically viable, the FYA materially shifts the post-tax IRR upward — typically by 2–4 percentage points versus a no-FYA baseline. That's rarely the deciding factor on its own, but it lifts marginal projects into "do it" territory and makes already-strong projects unambiguous.

For companies with year-ends after 31 March 2026, the loss of the FYA is real but does not on its own change the recommendation. Capital purchase is still the lowest total-cost-of-ownership structure for profitable trading companies. Green loans, finance leases, and PPAs remain the next-best options where capital constraints bind. The post-FYA economics are better than they look — most of the project value is still in the avoided electricity cost over 25 years, not the year-one tax line.