Capital Purchase: Solar Asset Finance

Buying your solar system outright with cash is the benchmark against which every finance route should be judged. It carries no interest, gives the fastest simple payback, and delivers the lowest lifetime cost of energy of any option. If your business has the capital and no higher-returning use for it, a capital purchase is hard to beat.

We include capital purchase in every quote precisely so you can see the true cost of borrowing. Sometimes the right answer is to pay cash; sometimes the tax timing and cash-flow benefits of hire purchase or a lease outweigh the interest. We’d rather show you the honest comparison than push you toward the route that pays us most.

Maximum capital allowances

As the outright owner you get the full benefit of the capital allowances. Solar PV is special-rate expenditure, so the cost qualifies for:

• the Annual Investment Allowance at 100% on up to £1m of spend in the year; and
• the 50% first-year allowance on any special-rate spend above the AIA cap, with 6% writing-down allowances on the balance thereafter.

Both reliefs are now permanent, the 1 April 2026 sunset having been removed by the Autumn Finance Bill 2023. Note that solar does not qualify for 100% full expensing — that relief is for main-rate plant only, and solar is special-rate. It’s a distinction we see misstated constantly; our capital allowances guide explains it properly.

The lowest cost of energy

Because there’s no interest and no lessor’s margin, a cash-purchased system produces electricity at the lowest possible cost per kWh over its life. A typical commercial install pays back in five to eight years on energy savings and export income alone, then continues generating for another 17 to 20 years effectively for free. Over a 25-year horizon, that lifetime saving is usually the largest of any route — which is exactly why it’s the benchmark.

Worked example: a 120 kW system bought outright

The figures below are illustrative — a worked example to show how the numbers move, not a quote. Your real costs, generation and tax position depend on your roof, tariff and accounts, so model your own figures in the finance calculator before deciding. Take a 120 kW rooftop system for a mid-sized commercial building, installed for around £132,000 (ex VAT) — roughly £1,100 per kW.

What it generates and saves (year one, illustrative):

• Annual output: about 110,000 kWh (around 920 kWh per kW installed in a typical UK location).
• Roughly 70% self-consumed — 77,000 kWh offsetting grid import at, say, 25p/kWh = £19,250 saved.
• Roughly 30% exported — 33,000 kWh at an indicative 10p/kWh Smart Export Guarantee rate = £3,300 of export income.
• Total year-one energy benefit: about £22,550.

The year-one tax effect (25% corporation-tax company, illustrative):

• Solar PV is special-rate expenditure, and £132,000 sits well under the £1m Annual Investment Allowance cap — so the whole £132,000 qualifies for 100% AIA in year one (there is no full expensing for solar; that relief is main-rate only).
• At the 25% main rate, that relief cuts your corporation tax bill by £132,000 × 25% = £33,000.
• Effective net cost after allowances: £132,000 − £33,000 = £99,000.

The cash-flow picture:

• Up front you pay £132,000 plus £26,400 VAT (£158,400 in total). If you’re VAT-registered you reclaim the £26,400 on your next return, so the VAT is a timing effect rather than a real cost.
• There is no monthly repayment — that is the defining feature of buying outright. For contrast, spreading the same £132,000 over a five-year hire purchase might cost roughly £2,550 a month (illustrative), about £30,600 a year against a ~£22,550 energy benefit: cash-negative in the early years, but with your £132,000 left working elsewhere in the business.
• Net of the £33,000 of tax relief and the ~£22,550 first-year energy benefit, your true first-year outlay is around £76,500, and the system keeps saving for two decades after payback.

On these illustrative numbers, simple payback lands at roughly £132,000 ÷ £22,550 ≈ 5.9 years before allowances, and materially faster once the £33,000 of tax relief is counted.

How capital purchase compares

Every route reaches the same panels on the same roof — what differs is who owns the asset, who books the tax relief, and how the cost lands on your accounts. The illustrative comparison below covers the axes that usually decide it.

Route	Ownership	Who claims capital allowances	Balance sheet	VAT timing	Typical term	Best for
Capital purchase (cash)	Yours from day one	You do — full AIA / 50% FYA	On balance sheet as owned plant	Paid up front, reclaimable	None — single payment	Cash-rich businesses with no higher-returning use for the capital
Hire purchase / loan	Yours (title passes on the final HP payment; immediately with a loan)	You do — full AIA / 50% FYA	On balance sheet (asset plus liability)	Paid up front, reclaimable	3–7 years	Owning and claiming allowances while keeping cash working
Finance lease	Lessor owns it	Lessor claims; benefit passed to you through lower rentals	On balance sheet under FRS 102	Spread across the rentals	3–10 years	Getting the tax benefit passed through without the capital outlay
Operating lease	Lessor owns it	Neither — rentals are simply deductible for the lessee	On balance sheet for periods beginning on/after 1 Jan 2026 (revised FRS 102)	Charged on the rentals	3–7 years	Simple opex treatment and flexibility to walk away at term end
PPA	Funder owns it	Funder claims — and keeps the SEG export income too	Off balance sheet (you buy power, not plant)	Charged on the unit rate you pay	15–25 years	Zero-capex sites happy to trade lifetime value for no money up front

Under the revised FRS 102, most leases move onto the balance sheet for accounting periods beginning on or after 1 January 2026, so the historic “off-balance-sheet” appeal of an operating lease no longer applies to new agreements from that point.

You keep everything

Outright ownership means you keep all the value the system creates: the full bill savings, the Smart Export Guarantee income on exported power, and the asset itself, which adds value to your premises (a better EPC, lower running costs, MEES headroom). Compare that with a PPA, where the funder keeps the asset, the allowances and the export income — the difference over 25 years is stark, as we set out in asset finance vs PPA.

When not to buy outright

Paying cash isn’t always the best use of capital. If the money would earn more deployed in your core business, or if taking £200,000 out of working capital would strain cash flow, financing the system and keeping your cash working can produce a better overall return — even after the cost of borrowing. And if you’ve already bought a system and now want that capital back, refinance or sale-and-leaseback can release it without losing the system.

When this route is NOT the right choice

If your business is growing and can put capital to work at a return above the roughly six-year payback, tying £132,000 into a roof is the wrong call — even though the lifetime maths favours cash. The same is true if a single large outlay would leave your working capital thin. In those cases you want to own and depreciate the asset without draining the bank, and a hire purchase agreement does exactly that: you claim the full allowances and keep the export income, while spreading the cost over three to seven years. A finance lease is the alternative if you would rather the lessor carried the asset and passed the tax benefit back through lower rentals. Buy outright only when the capital genuinely has no better home.

Common questions

Can I claim the full cost of a solar system against tax in the first year?

In most cases, yes. Solar PV is special-rate plant, and the Annual Investment Allowance gives 100% relief on up to £1m of qualifying spend in the year the cost is incurred — so a £132,000 system is fully relieved in year one. Only spend above the £1m cap steps down to the 50% first-year allowance, with 6% writing-down allowances on the remaining balance. Solar does not qualify for full expensing, which is reserved for main-rate plant — a distinction the capital allowances guide sets out in full.

Is it cheaper to buy solar outright or to finance it?

Buying outright is almost always the lowest lifetime cost, because you pay no interest and no lessor’s margin. Financing is not about a lower total bill — it is about keeping your capital deployed where it earns more, and about spreading the cost across the same years the system is saving you money. The deciding factor is your cost of capital: if the business reliably returns more than the finance rate, keep the cash and finance the panels; if it does not, buy outright. We put both side by side in every quote so you can see the gap in pounds rather than in theory.

Already paid cash and want to compare?

If you’re weighing a cash purchase against financing, we’ll build the comparison for you — net cost after allowances, payback, IRR and lifetime saving for each route, side by side. Request a quote and we’ll model it from your numbers.