Capital Allowances on Fabrication Solar: AIA and the 50% FYA (2026)

If you run a metal-fabrication or engineering firm and you are weighing a rooftop solar array against a new fibre laser or press brake, the tax treatment matters as much as the payback. The good news is that a profitable fabrication company can usually deduct the entire cost of a commercial solar system from its taxable profit in the year it is installed. The important detail, which a lot of solar salespeople get wrong, is which allowance actually applies. Solar is not covered by the headline “full expensing” you may have read about, and it never qualified for the 40% first-year allowance either. This guide sets out exactly how a fabrication business claims relief in 2026, with the numbers, and where the common myths trip owners up.

Everything here is illustrative. Your actual position depends on your profits, your accounting period and your wider capital spending, so confirm the figures with your accountant before you rely on them.

Why solar is “special-rate” plant, and why that matters

For capital allowances, HMRC splits plant and machinery into two pools. Most equipment, a CNC machining centre, a compressor, a fork-truck, sits in the main rate pool. A defined list of longer-life and “integral features” assets sits in the special rate pool, and solar PV is explicitly on that list (HMRC manual CA22335). That single classification drives everything below.

The consequence is straightforward but counter-intuitive:

• Full expensing (100%, permanent from 2023) applies to main-rate plant only. Solar is special-rate, so it is excluded. If anyone tells you a fabrication solar array qualifies for full expensing, they are wrong.
• The 50% first-year allowance (FYA) is the special-rate equivalent of full expensing, made permanent alongside it. This is the one solar can use above the AIA cap.
• The 40% first-year allowance introduced from 1 January 2026 is main-rate only. Solar does not qualify for that either.

So the real toolkit for a fabrication buyer is three allowances working together: the Annual Investment Allowance, the 50% FYA, and the 6% writing-down allowance. Not full expensing, and not the 40% FYA.

The Annual Investment Allowance: the main event for most fab shops

The Annual Investment Allowance (AIA) gives 100% relief in year one on the first £1,000,000 of qualifying plant and machinery, and, unlike the first-year allowances, it can be set against special-rate spend such as solar. Because most SME fabrication installs land between roughly £30,000 for a small welding unit and £330,000 for a large structural-steel or laser-profiling plant, the AIA alone covers the whole system for almost every fabrication buyer.

Here is what that looks like for a profitable company paying corporation tax at the main 25% rate:

Fabrication install	Qualifying spend	Allowance used	Year-one tax saved (25%)
Small welding / engineering unit	£45,000	AIA (100%)	£11,250
Mid-size sheet-metal & CNC shop	£150,000	AIA (100%)	£37,500
Structural-steel or laser plant	£330,000	AIA (100%)	£82,500

The saving is not free money, it is tax you would otherwise have paid, brought forward and taken in full in year one rather than dribbled out over decades. For a fabrication shop already committing to solar to cut a doubled electricity bill, it materially shortens the effective payback. If you want to see where that spend sits before allowances, our cost guide breaks down price per kWp by system size, and our full grants and funding page maps every relief in one place.

One caution: the £1m AIA is a single annual limit shared across all your qualifying capital spend. If you are also buying a £600,000 fibre laser in the same accounting period, the laser and the solar together can breach the cap, and the excess solar spend then falls to the 50% FYA route below. Time large purchases with your accountant so you do not waste allowance.

Above £1m: the 50% first-year allowance, then 6% WDA

Larger fabrication projects, or a year with heavy simultaneous plant investment, can push qualifying solar spend past the £1,000,000 AIA ceiling. That excess does not lose relief, it steps down to the special-rate first-year allowance:

• 50% first-year allowance on the special-rate spend above the AIA cap, deducted in year one.
• 6% writing-down allowance (WDA) on the remaining 50% balance, on a reducing-balance basis in each following year.

A worked example for a large multi-shed structural-steel operation spending £1,300,000 on solar in one period:

Slice of spend	Allowance	Relief in year one
First £1,000,000	AIA (100%)	£1,000,000
Remaining £300,000	50% FYA	£150,000
Balance carried forward (£150,000)	6% WDA thereafter	£9,000 in year two, reducing

So even at £1.3m of spend, £1,150,000 of relief lands in year one. Both the 50% FYA and full expensing were made permanent in 2023, so this is a stable planning environment, not a window that closes.

The reliefs that stack on top of the tax deduction

Capital allowances are the biggest single lever, but they are not the only one for a fabrication site, and the tax treatment sits inside a wider funding picture:

• VAT is 20% and reclaimable. Commercial solar carries standard-rate VAT, which a VAT-registered fabrication company reclaims in the normal way. The 0% VAT rate you may have seen is a domestic-only measure, it does not apply to a workshop.
• Business rates exemption. In England, on-site solar generation and co-located battery storage used on the property are exempt from business rates until 31 March 2035, so the array does not add to your rateable value.
• Smart Export Guarantee (SEG). Any surplus you export is paid at supplier-set rates, broadly 12 to 16p/kWh in 2026. For a single-shift fabrication shop this is a secondary prize, because 70 to 90% of generation is self-consumed, which is exactly what makes the structural-steel fabrication and laser-profiling sites pay back fastest.

There is no cash grant scheme to chase here. The Industrial Energy Transformation Fund is closed, and the enhanced 100% Freeport and Investment Zone allowances only apply if your site physically sits inside a designated special tax site, not a generic trading estate.

How ownership route changes the picture

Capital allowances only help if you buy the system, so the relief interacts with how you fund it:

• Cash purchase. You own the asset, claim the AIA (and 50% FYA above £1m), and reclaim the VAT. Cleanest route for a profitable, cash-rich company.
• Asset finance / hire purchase. You still own the asset for tax purposes and can still claim the allowances, while spreading the cash cost over five to seven years, usually cash-flow positive from month one because the finance payment is below the bill it replaces.
• Power Purchase Agreement (PPA). A funder owns the array, so they claim the allowances, not you. You buy the power below grid with no capital outlay, which suits tenants and shorter leases, but you forgo the tax relief. That is a fair trade when preserving capital for a new machining centre matters more than the deduction.

We model cash, finance and PPA side by side against your half-hourly meter data so you can see the after-tax return of each. If you are still deciding whether the spend belongs on the roof or on the shop floor, our guide on funding fabrication solar without touching your capital walks through the finance routes in detail.

Common mistakes fabrication owners make on the tax

1. Assuming full expensing applies. It does not, solar is special-rate. The correct 100% route is the AIA, not full expensing.
2. Expecting the 40% FYA. The first-year allowance introduced in January 2026 is main-rate only, so solar is out.
3. Believing the 0% VAT rate. That is domestic. Commercial fabrication solar is standard-rated and reclaimable.
4. Blowing the £1m AIA on other plant. A fibre laser bought in the same year eats the same allowance, so sequence purchases deliberately.
5. Claiming relief on a PPA system you do not own. If the funder owns it, the funder gets the allowances.

The bottom line for a fabrication company

For the overwhelming majority of UK fabrication SMEs, the Annual Investment Allowance deducts the entire cost of a solar array from taxable profit in year one, worth up to roughly 25% of the spend back for a profitable company. Only when a single period’s qualifying spend clears £1m do you reach the 50% first-year allowance and then the 6% writing-down allowance, and even then the bulk of the relief still lands immediately. Full expensing and the 40% FYA are red herrings for solar, both are main-rate only.

Because power is now the largest controllable cost after steel and labour for most metal-bashing shops, and because fabrication’s single-shift daytime load gives it one of the best self-consumption profiles of any building type, the after-tax payback on a well-sized array is genuinely compelling. Read the current position straight from HMRC’s capital allowances guidance, confirm the numbers with your accountant, then request a fixed-price quote and we will model the full after-tax return on your actual load.

This guide is general information, not tax advice. Allowances, rates and thresholds change, and your entitlement depends on your company’s circumstances, so always confirm with a qualified accountant or HMRC before relying on any figure.