Funding for solar panels: business options 2026

There is no single fund that pays for a commercial solar array, and any broker who tells you otherwise is selling something. What actually exists in 2026 is a set of separate mechanisms — tax reliefs, an export tariff, a small number of regional and sector grants, and asset finance — that you assemble into one funding stack. Understanding how each piece works, and which ones the wrong structure can quietly hand to a third party, is the difference between a system that pays for itself in seven years and one that pays for someone else.

This guide sets out the real funding options for solar panels for a UK business, what each is worth, and how they combine.

The four building blocks of solar funding

Most commercial solar projects are funded from four sources at once. Rarely does any one of them cover the whole cost, which is why the stack matters more than the headline.

1. Capital allowances — the largest single saving

For most trading companies, the biggest pound-for-pound contribution comes from tax relief, not a grant. Solar PV is special-rate (integral-feature) expenditure. That means it qualifies for the Annual Investment Allowance (AIA) at 100% on the first £1m of qualifying spend each year, and the 50% first-year allowance on anything above that £1m threshold. Both reliefs are permanent.

It is worth being precise here because the error is common: solar does not qualify for 100% full expensing. Full expensing applies only to main-rate plant and machinery. Solar sits in the special-rate pool, so AIA is the route to 100% relief for the vast majority of projects, which comfortably fit inside the £1m annual cap.

A worked illustration: a £200,000 array, fully covered by AIA, gives a £200,000 deduction. At the 25% main rate of corporation tax that is £50,000 of tax saved in year one. The catch is that you only get this if your business owns the asset — which makes the finance structure a funding decision, not just a payment decision. We cover the detail at /capital-allowances/.

2. The Smart Export Guarantee

Every unit of electricity you generate but do not use on site can be sold back to the grid under the Smart Export Guarantee (SEG). Tariffs vary by supplier, but the SEG is a genuine income line over the system’s 25-year-plus life — and, like the allowances, it accrues to the owner of the system. An MCS-certified installation is the usual precondition. For commercial sites with strong daytime self-consumption it is a secondary benefit, but it is real money and it belongs with the business when you own.

3. Grants and regional support

This is where expectations need managing. There is no blanket national grant for commercial solar in England. What exists is patchier: regional and devolved-administration low-carbon programmes, sector-specific schemes (Salix interest-free loans for the public sector, for example), and occasional local-authority decarbonisation funding. These come and go, are often capped, and frequently exclude businesses that can already use capital allowances. They are worth chasing where eligible, but they are the topping, not the base. We keep a current view at /solar-grants-for-business/ and the wider landscape at /grants-and-funding/.

4. Asset finance — the part that funds the rest

The first three blocks reduce the net cost; asset finance covers the cash. Rather than tie up working capital, most businesses spread the capital cost across the life of the asset so that the energy saving and export income broadly offset the repayment from day one. The structures available — hire purchase, equipment loans, finance leases, operating leases and sale-and-leaseback — are summarised across /verticals/, each with different tax and ownership consequences.

How ownership decides who keeps the value

The single most important funding decision is who ends up owning the panels, because ownership controls the allowances and the export income.

• Hire purchase, equipment loan or cash purchase: the business owns the system. You claim the capital allowances and you keep the SEG income. This is the route that keeps the full tax and export value inside your own accounts.
• Finance lease: the lessor usually claims the allowances and passes the benefit back through lower rentals (unless it is a long-funding lease). The rentals themselves are deductible.
• Operating lease: no allowances for you as lessee, but the rentals are a deductible operating cost. This can suit a business that cannot use allowances anyway — a non-taxpayer, or one with no taxable profit to relieve.
• Power purchase agreement (PPA): the third-party funder owns the system, claims the allowances and keeps the SEG income. You simply buy the power. Zero capex, but you have given away two of your four funding blocks.

That last point is the heart of it. A PPA looks like free solar, but the funder’s margin is built from the allowances and export income you would otherwise have kept. For a profitable, tax-paying business, owning through asset finance generally retains far more value than a PPA — you keep the reliefs, you keep the export income, and you own an appreciating energy asset at the end of the term. We set the two side by side at /asset-finance-vs-ppa/.

Stacking grants with finance

Grants and finance are not mutually exclusive. A common and effective structure is to apply any available grant against part of the capital cost and finance the balance. The grant reduces the amount borrowed; the finance keeps the rest off your cash position; the allowances apply to the qualifying spend you fund yourself. Watch two things: some grants reduce the expenditure that qualifies for capital allowances, and some carry clawback conditions on disposal. Both are manageable with the right advice before you commit.

A note on the balance sheet

How financed solar appears in your accounts is changing. Under the revised FRS 102, for accounting periods beginning on or after 1 January 2026, most leases come on-balance-sheet for lessees as a right-of-use asset and a corresponding liability, with short-term and low-value leases exempt. In practice this narrows the old accounting gap between leasing and owning, so the decision rests more squarely on tax and economics than on balance-sheet optics. On VAT: VAT-registered businesses can reclaim the VAT on the equipment either way — hire purchase and loans pay it up front, while leases spread it across the rentals.

Putting the stack together

For a typical profitable UK business, the strongest funding stack in 2026 looks like this: own the system through hire purchase or an equipment loan, claim 100% AIA on the spend, bank the SEG export income, apply any regional or sector grant you qualify for against the capital, and size the repayment term so the energy saving covers it. That keeps every funding block working for you rather than for a third party.

The right answer genuinely depends on your tax position, cash flow and whether you can use the allowances at all — which is exactly what we work through before recommending a structure. Tell us the project size and your timing and we will model the stack in pounds for your business: start at /quote/.