Full Expensing & Capital Allowances for Farm Solar in 2026
By Sarah Mitchell · 22 April 2026
Tax relief on farm solar investment is one of the most underutilised financial benefits in agricultural solar. The combination of Full Expensing (FE) and the Annual Investment Allowance (AIA) means that most UK farming businesses can write off 100% of their solar installation cost against taxable profits in the year of installation — reducing the effective net cost by 19–25% before grants are even considered.
What is Full Expensing and how does it apply to farm solar?
Full Expensing was made permanent by the Chancellor in the 2023 Autumn Statement. It allows companies to deduct 100% of qualifying plant and machinery expenditure in the year it is incurred — rather than spreading deductions over several years using the old writing-down allowance system. Solar panels and associated equipment (inverters, battery storage, mounting systems, metering) all qualify as plant and machinery.
Who can use Full Expensing
Full Expensing is available only to companies (limited companies, LLPs treated as companies). Sole traders and partnerships use the Annual Investment Allowance (AIA) instead — which achieves the same 100% first-year deduction effect for most farm businesses.
The Annual Investment Allowance for sole trader and partnership farms
The AIA allows a 100% deduction for qualifying plant and machinery expenditure up to the AIA cap (currently £1 million per year for most businesses). A typical farm solar installation of £60,000–£250,000 falls well within the AIA cap. The practical effect is identical to Full Expensing: the full installation cost comes off taxable profits in year one.
AIA for mixed-use farming businesses
Farms with diversified income (glamping, forestry, contracting) should take care to allocate the AIA to qualifying expenditure items. Your accountant should confirm that the solar installation cost is allocated under the AIA before any non-qualifying items.
Stacking allowances with FETF grants
FETF grants reduce the taxable cost of the asset. If a £100,000 system receives a £40,000 FETF grant, the AIA/Full Expensing deduction applies to the net cost of £60,000 — not the gross £100,000. This is the correct treatment; the grant is capital receipt and reduces the allowable deduction accordingly.
Battery storage and associated equipment
Battery storage systems installed alongside solar are also qualifying plant and machinery for AIA/Full Expensing purposes. Separately, energy storage (batteries) qualifies as a “special rate” asset under the old system — but under Full Expensing/AIA, the distinction disappears and 100% relief is available in year one regardless.
Practical example: the tax benefit in numbers
A farming company spends £120,000 on a 100 kWp solar system (after a £40,000 FETF grant, net cost £80,000). Using Full Expensing, the company deducts £80,000 from taxable profits. At 25% corporation tax, this generates a £20,000 tax saving in year one. Combined with the FETF grant, the effective net cost is £60,000 — a reduction of 50% from the gross installation price of £120,000.
Conclusion
Tax relief on farm solar is not complex — it is a straightforward application of plant and machinery allowances to qualifying expenditure. Work with an accountant who understands agricultural capital allowances, apply the AIA or Full Expensing in the year of installation, and document your solar costs clearly.
Related reading
- Capital Allowances for Farm Solar — Overview of capital allowances for farm solar.
- Farm Solar ROI 2026 — Payback analysis including tax relief.
- FETF Application Guide — How to apply for FETF capital grants.
- Finance Options — Compare PPA, lease and asset finance.
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