Introduced in April 2023 and made permanent in the 2023 Autumn Statement, Full Expensing is one of the most significant tax incentives for commercial solar in the UK's history — yet many businesses aren't using it. Here's exactly how it works.
What is Full Expensing?
Full Expensing is a 100% first-year capital allowance for qualifying plant and machinery. Instead of spreading the cost over many years, a business deducts the entire cost in year one, reducing taxable profit by the full purchase price.
| Installation cost | Full Expensing relief (25% corp tax) | Effective cost |
|---|---|---|
| £50,000 | £12,500 | £37,500 |
| £100,000 | £25,000 | £75,000 |
| £200,000 | £50,000 | £150,000 |
| £500,000 | £125,000 | £375,000 |
Does commercial solar qualify?
Yes. Solar panels and battery storage installed on commercial premises qualify as plant and machinery under Full Expensing, provided:
- The installing company is liable to UK corporation tax (not sole traders / partnerships — see below)
- The asset is new and unused (not second-hand)
- The asset is used wholly or partly for the company's trade
- The company owns the asset — a PPA (where the funder owns the panels) does not qualify
Sole traders and partnerships
Full Expensing vs. Annual Investment Allowance
The AIA already provides 100% relief on qualifying assets up to £1 million. Full Expensing removes the cap — a company spending £2 million on solar can still claim 100% relief in year one. For most SME projects under £1 million, AIA covers the same ground; for larger projects, Full Expensing is more valuable.
The combined impact: tax relief plus energy savings
| Year 1 | Year 3 | Year 10 | |
|---|---|---|---|
| Gross installation cost | £200,000 | — | — |
| Full Expensing relief (25%) | −£50,000 | — | — |
| Effective cost after tax | £150,000 | — | — |
| Annual energy saving | ~£20,000 | ~£20,000 | ~£20,000 |
| Cumulative savings | £20,000 | £60,000 | £200,000 |
| Net position | −£130,000 | −£90,000 | £0 |
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Timing & how to claim
Full Expensing has been made permanent — no artificial deadline. Relief is claimed in the company's accounting period in which the expenditure is incurred. For a company nearing year-end, installing before year-end may allow earlier relief. Work with your accountant to time investment for maximum efficiency.
It's claimed on the corporation tax return (CT600) as a first-year allowance. You need a purchase invoice, evidence the asset qualifies, and confirmation the asset is new and owned by the company.
Frequently asked questions
Does Full Expensing apply to battery storage as well as panels?
Yes. Battery storage installed as part of a commercial solar system qualifies as plant and machinery. Inverters and associated electrical equipment also qualify.
We're a sole trader — can we claim Full Expensing?
No, but you can use the Annual Investment Allowance (AIA), which provides equivalent 100% relief on up to £1m of expenditure per year. For most sole-trader projects, AIA covers the full cost.
Does Full Expensing affect VAT?
No — Full Expensing is a corporation tax relief. Commercial solar attracts 20% VAT (domestic is 0%). VAT-registered businesses reclaim as input VAT in the normal way.
What if we take finance to fund the install?
Under hire purchase or finance lease arrangements where the business has economic ownership, Full Expensing may still apply. Operating leases (where the funder retains ownership) do not. Your accountant should confirm the structure.
