Finance vs Purchase — Paying for Commercial Solar in 2026
Three honest routes: buy it, finance it, or let a funder own it on your roof. Each is right for somebody. Here is the whole-term arithmetic, including the tax treatment most comparison pages skip.
Cash purchase vs asset finance vs PPA
| Cash purchase You own it from day one | Asset finance / HP You own it, spread the cost | PPA / roof lease Funder owns it, you buy the power | |
|---|---|---|---|
| Upfront capital required | Full cost | 0–20% deposit | None |
| AIA / 50% FYA tax relief | |||
| You keep all generation value | |||
| Maintenance risk sits with you | |||
| Off balance sheet | Typically | ||
| Typical term | n/a | 5–7 years | 15–25 years |
| Whole-life value captured | Highest | High | Lowest |
The worked example: 100kW, £86,500 installed
Same system as the 100kW cost guide: 91,000 kWh annual yield, 84% self-consumption at 25.8p/kWh, annual benefit about £20,800 in year one, rising with energy prices.
Cash purchase. £86,500 out, AIA relief returns ~£21,600 at 25% corporation tax. Net cost ~£64,900. The system clears that in just over three years and then generates roughly £20,000+ a year of value for two more decades. Whole-25-year position: strongly the best, if the capital isn't needed elsewhere.
Asset finance / hire purchase. Typical 2026 terms on a 6-year HP: ~£1,480 a month after a 10% deposit. Annual finance cost ~£17,800 against ~£20,800 of energy value — the system is cash-positive from month one, you still claim capital allowances as owner, and after year six the payments stop and the savings don't. The premium over cash for the whole term is real but modest; this is the default route for businesses that want ownership without the capex dent.
PPA / roof lease. A funder installs and owns the system and sells you its output at, say, 16–19p/kWh indexed, against a 26p grid rate. You save roughly £6,000–£8,500 a year with zero capital and zero maintenance risk — genuinely attractive — but the funder keeps the rest of the value, you cannot claim capital allowances, and you are signing a 15–25 year supply contract with indexation. PPAs shine at larger scale (500kW+), for organisations with rigid capital constraints, and for multi-site estates standardising delivery.
Three questions that pick the route for you
Do you pay UK corporation tax and have profits to relieve? If yes, ownership routes carry a 19–25% effective discount via the AIA that a PPA can never match. If you are a school, charity or loss-making entity, that advantage evaporates and PPAs climb the ranking.
What else would the capital do? If retained cash earns more in your business than the system's effective return (typically 15–25% unlevered), finance the solar and keep the cash working. Most SMEs find the solar return beats their deposit account but not their best internal projects — which is exactly what asset finance is for.
How long will you occupy the building? Owners and long-lease tenants can take 25-year views. On a short lease, a PPA structured with the landlord — or a shorter finance term matched to your break clause — keeps the commitment aligned with your tenure.
VAT, briefly
Commercial installations carry 20% VAT regardless of route (the 0% rate to March 2027 is domestic only). VAT-registered businesses recover it as input tax on purchase or HP; under a PPA you simply pay VAT on the power as you would on any supply. The figures above are ex-VAT, as commercial solar quotes conventionally are.
Whatever the route, the underlying project must be priced right first — start with the price factors, find your size band on the 2026 cost table, then run the funding comparison on real numbers.
Finance and tax questions
How does the Annual Investment Allowance apply to solar?
The AIA gives a 100% deduction against taxable profits in the year of purchase, on qualifying plant and machinery spend up to £1 million — which covers the full cost of most commercial rooftop systems. A £90,000 system bought by a company paying 25% corporation tax effectively costs £67,500 after year-one relief. Solar must be owned (cash or hire purchase) to claim; PPA systems belong to the funder.
What is the 50% first-year allowance and when does it matter?
Solar panels are classed as special-rate plant. Companies that have already used their £1 million AIA elsewhere can still deduct 50% of solar capex in year one under the special-rate first-year allowance, with the balance written down at 6% a year. For most SMEs the AIA route is simpler and better; the 50% FYA matters mainly to larger investors with big capital programmes.
Does a PPA affect my EPC or count as ours for ESG reporting?
The EPC benefit attaches to the building, so a roof-lease PPA still helps the rating. For Scope 2 reporting, power bought under an on-site PPA is typically reported as renewable supply with strong additionality — better than buying certificates, though the system itself sits on the funder's balance sheet, not yours.
Can I buy the system out of a PPA later?
Most roof-lease PPAs include buyout points, typically from year 5 or 10, at a price set by formula. Read that schedule before signing: buyout pricing and indexation clauses are where poorly negotiated PPAs hide their cost. An indexed PPA rate that looked cheap in year one can pass grid parity well before the term ends.