How buy outright (capital purchase) works when a business funds solar
Your business pays the installed cost from its own cash and owns the system outright the day it is switched on. The year-one capital allowance and, for VAT-registered firms, the reclaimed VAT bring the net cost down quickly, and because there is no lender margin every unit of electricity you generate is worth its full value for twenty-five years or more. The trade-off is opportunity cost: that cash is no longer available for stock, hiring or growth, so the question is whether the return on solar beats the return on the next best use of the money.
Buying outright, on your own terms
Paying for the system from your own reserves is the funding decision with the fewest moving parts and the biggest long-run reward. There is no funder in the middle, no repayment schedule to manage and no interest quietly eroding the return, so every unit of electricity the array produces is worth its full value to your business for twenty-five years or more. Most owners who look at this route are really asking one question: is the money better spent on panels than on the next thing the business could do with it. That is the honest test, and it is a cash-position question before it is a solar question.
What actually happens
You agree a specification and price, pay the installed cost, and the system becomes an owned asset on your balance sheet from the day it is switched on. From then the power you use on site displaces grid electricity at roughly 26 to 32p a unit, and anything you export earns under the Smart Export Guarantee, the Ofgem scheme that replaced the Feed-in Tariff and covers systems up to 5 MW. Because you own the kit outright, you also control it: you choose who maintains it, you decide whether to add battery storage later, and you can refinance or sell the building without asking a funder's permission.
The tax that makes the sums work
Solar PV is special-rate plant, which is the single fact most business owners get wrong. It does not qualify for full expensing, so ignore any pitch promising a 100 per cent main-rate write-off. What it does qualify for is the Annual Investment Allowance, giving 100 per cent first-year relief on qualifying spend up to £1m a year. Since most business installs cost well under that, the whole system usually attracts full relief in year one, worth about 25p in the pound at a 25 per cent corporation-tax rate. Spend above the cap can use the 50 per cent special-rate first-year allowance, with the balance written down at 6 per cent a year. If you are VAT-registered you reclaim the 20 per cent VAT through your normal return, so for most firms it is a timing item rather than a real cost. These are general points, not advice, so confirm your position with your accountant.
The honest trade-off
The cost of buying outright is opportunity cost: that cash is no longer available for stock, hiring or growth, and the whole outlay lands in one accounting period. You also carry the maintenance and performance responsibility yourself. If tying up the capital would leave the business short of headroom, a financed route that spreads the cost while keeping ownership, such as hire purchase or a business or green loan, may fit better without giving up much of the return. Model buying against those before you decide.
Pros
- Highest lifetime return of any route
- Full first-year tax relief on most installs
- No interest or lender margin to erode the saving
- Simple ownership with no contract to manage
Trade-offs
- Uses working capital you could deploy elsewhere
- You carry the maintenance and performance responsibility
- The whole cost lands in one accounting period
Owning outright wins on lifetime return, so the number that decides it is when the saving repays the outlay: work through the payback maths. Still weighing this against the alternatives? Line every funding route up side by side before you decide.