Hire Purchase vs Lease vs Loan for Commercial Solar

Most UK businesses funding a rooftop solar array face the same choice: do you want to own the system or just use it. Hire purchase, an asset finance lease and a green loan sit on different sides of that line, and the answer changes how the install shows up on your balance sheet, who claims the tax reliefs, and who keeps the export income.

This guide compares the three main own it or use it routes so you can shortlist before you request numbers. When you are ready, our finance options compared page sets every funding method side by side.

The three routes in one line

• Hire purchase (HP): you pay in instalments, then a small final payment transfers ownership. You are treated as the owner for tax from day one.
• Green loan (business solar loan): the lender advances cash, you buy the system outright, and you repay the loan. You own the asset immediately.
• Operating lease: the funder owns the system and you rent it. Payments are an operating cost and the asset stays off your balance sheet.

Two of these three end with you owning the panels. That distinction drives almost everything that follows.

Route comparison

Feature	Hire purchase	Green loan	Operating lease
Who owns the system	You, after the final payment	You, from purchase	The funder
On your balance sheet	Yes, as an asset and liability	Yes, asset plus loan	Usually off balance sheet
Who claims capital allowances	You	You	The funder
Keeps the SEG export income	You	You	Normally the funder
VAT treatment	Reclaim on purchase price	Reclaim on purchase price	20% on rentals, reclaimable
Typical term	Around 3 to 7 years	Around 3 to 10 years	Around 5 to 15 years
Best when	You want ownership with spread cost	You want ownership and have loan capacity	You want the lowest monthly cost and no asset

Ownership: why it matters more than the monthly figure

With HP and a green loan you own the array, so it works for you long after the finance is repaid. A commercial solar system typically produces for 25 years or more, and once the term ends the electricity is close to free. That long tail of ownership is the main reason the own it routes tend to beat leasing over the full asset life.

An operating lease often shows the lowest monthly cost, which can suit a business protecting borrowing capacity or short on cash. The trade off is that you never own the system, the funder usually keeps the tax reliefs and the export income, and payments continue for the whole term.

If lower monthly outlay is the priority, also look at a power purchase agreement, where you pay per unit of solar power with no capital outlay at all.

Balance sheet treatment

HP and green loans put the asset on your balance sheet, with a matching liability for the outstanding finance. That raises gross assets and can affect gearing, but it also means the array is yours and the depreciation and reliefs sit with you.

An operating lease is generally treated as an off balance sheet operating expense, so it does not add a large asset or loan. Under current accounting standards some leases are brought on balance sheet, so confirm the treatment for your entity with your accountant before you assume it stays off.

The tax picture (this is where ownership pays)

Because HP and green loan buyers are treated as owning the system, they claim the capital allowances. Here is how it works for commercial solar in the UK.

Solar PV is classed as special rate plant and machinery. That has three consequences worth knowing:

• It does not qualify for 100% full expensing (that is main rate plant only) or the new 40% first year allowance.
• It does qualify for the Annual Investment Allowance (AIA): 100% relief in year one on qualifying spend up to £1m a year, which covers the great majority of commercial installs.
• If your spend takes you above the £1m AIA cap, the excess can use the 50% special rate first year allowance (companies only), with the remaining balance written down at 6% a year on the reducing balance.

So a typical business buying under £1m of solar via HP or a loan can usually write off the whole cost against profits in year one through the AIA. A lessee cannot, because the funder owns the asset and claims the allowances.

On VAT: commercial solar is standard rated at 20%, and a VAT registered business can reclaim it on the purchase price. The 0% domestic rate does not apply to commercial installs. On an operating lease the 20% falls on the rentals and is reclaimable in the same way.

Two more reliefs apply whichever route you own the system through:

• Business rates: rooftop solar used for self consumption is 100% business rates exempt in England from April 2022 to March 2035.
• Export income: the Smart Export Guarantee (SEG), which replaced the Feed in Tariff, pays you for power exported to the grid, with installations up to 5 MW eligible. As the owner you keep this income; a lessee usually does not.

Public sector bodies have their own path through the Public Sector Decarbonisation Scheme (Salix), which is not open to private businesses.

This is general information, not tax advice. The reliefs depend on your entity type, profits and timing, so confirm the numbers with your accountant before you commit.

Which route fits your business

• Choose hire purchase if you want to own the system, spread the cost, and claim the AIA, but prefer not to draw down a separate loan facility. See the hire purchase route.
• Choose a green loan if you have loan capacity, want ownership from day one, and want to keep the asset and the finance clearly separated. See the business solar loan route.
• Choose an operating lease if the lowest monthly cost and keeping the asset off your books matter more than long term ownership. See the operating lease route.

Rates on all three are typically priced off the base rate plus a margin, and the exact figure depends on term, deposit and your business profile. The only reliable way to compare is on real numbers.

Put numbers to it

Ownership routes usually come out ahead once you count the tax reliefs, the SEG export income and the years of near free electricity after the finance ends. But the right answer for your building depends on your cash position, your tax profile and the size of the array.

Use our finance calculator to model monthly cost against savings, check the payback and ROI picture, and see typical system costs for a business of your size.

When you want firm figures, request costed quotes. We are a comparison and quote service, not a lender, so we connect you with vetted MCS certified installers and funders and return HP, loan and lease options side by side. That way you compare the same system across every route and pick the one that owns or costs the least over its full life.