Heat Pumps for Business: 2026 Cost & Payback
A method for calculating simple payback on a commercial heat pump from your own quotes and tariffs, including the case where there is no payback at all.
The formula
Simple payback in years is the net capital cost divided by the yearly saving.
Net capital = quoted installed cost − Boiler Upgrade Scheme grant (if eligible) − tax saved through capital allowances.
Annual saving = annual cost of your current heating − annual cost of the heat pump (including any extra standing charge, maintenance difference and so on).
Payback = net capital ÷ annual saving. It ignores the time value of money, energy price changes and the avoided cost of a replacement boiler, so treat it as a first screen rather than a business case.
Step 1: capital cost from written quotes
Use quotes, not guides. Published price bands exist (see the cost guide), but they overlap and vary by building. Ask for the installed price including controls, buffer vessels, electrical and building-management integration, and note what is excluded: emitter upgrades, a supply upgrade, planning or noise work. If the quote leaves out a supply upgrade from your distribution network operator, add an allowance for it yourself.
Step 2: subtract grant and tax relief
Grant. In England and Wales, a building used for business may qualify for the Boiler Upgrade Scheme if the heat pump is 45 kW thermal or less for a single heat pump (70 kW thermal for a multi-unit system): £7,500, or £9,000 for oil or LPG off the gas grid (21 July 2026 to 31 March 2027). Above the Boiler Upgrade Scheme size limits there is no grant. See grants and funding.
Tax. Relief from capital allowances is the qualifying spend (after any grant) times your corporation tax rate: 25% for profits over £250,000, 19% at the small profits rate, with marginal relief between. Under the Annual Investment Allowance this relief arrives in year one up to £1m a year. Full expensing does not apply to heating. Confirm the classification with your accountant, and remember that not all costs on a quote may qualify in the same way.
Step 3: the annual saving, and the break-even caveat
Compute the heat your building uses each year (kWh of heat), then price it two ways: gas heat cost = gas price ÷ boiler efficiency, and heat pump heat cost = electricity price ÷ SCOP. The difference times annual heat is the saving. The running-cost calculator does this and shows the break-even SCOP.
The caveat that decides everything: if the SCOP is below break-even, the saving is zero or negative and payback does not exist on energy cost alone. At DESNZ Q1 2026 medium-business averages (25.0p/kWh electricity, 4.55p/kWh gas) and an assumed 88% boiler efficiency, break-even is a SCOP of about 4.8.
Worked example - arithmetic only, not a real project
Assumptions, all labelled and chosen for arithmetic: installed cost £60,000; no grant (system above the Boiler Upgrade Scheme size limits); a company paying 25% corporation tax claiming the whole spend under the Annual Investment Allowance; annual heat demand 200,000 kWh; gas 4.55p/kWh at 88% boiler efficiency.
Net capital: £60,000 × 25% = £15,000 tax saved, so £60,000 − £15,000 = £45,000.
Gas heat: 4.55 ÷ 0.88 = 5.17p per kWh of heat, so 200,000 × £0.0517 = £10,340 a year.
Case A. Electricity 25.0p and SCOP 4.0: 25.0 ÷ 4.0 = 6.25p per kWh of heat, so £12,500 a year. The saving is £10,340 − £12,500 = −£2,160. Running cost rises, so there is no payback on energy cost.
Case B. Electricity 15.0p (an assumption, not a published average) and SCOP 3.5: 15.0 ÷ 3.5 = 4.29p per kWh of heat, so £8,571 a year. The saving is £10,340 − £8,571 = £1,769. Payback is £45,000 ÷ £1,769 = about 25 years on these inputs.
These inputs are invented to show the method. They are not a prediction for any building.
What else belongs in the calculation
Test the result by changing one input at a time. Raise the SCOP by half a point, move the electricity price by a few pence, or swap the quote for a higher one, and see how far payback moves. If a small change flips the sign of the saving, the case rests on assumptions you should pin down with written figures before you commit. Keep a note of each input and its source, so that a director or lender reading your workings can follow them.
A fuller view adds the boiler you would otherwise buy (subtract its cost from net capital), servicing differences (one installer guide quotes annual servicing from about £250 plus VAT), carbon value if you have a target, and any cooling benefit. See whether heat pumps are worth it for business for how those factors combine.