Hire Purchase

Hire purchase for commercial solar: own the asset, spread the cost

Hire purchase sits between an outright capital purchase and a rental-style arrangement. You pay a deposit, then fixed monthly or quarterly instalments over an agreed term, and at the end of that term ownership of the solar system transfers to your business for a small nominal fee. It appeals to businesses that want the long-run economics of owning the array, keeping every unit of self-consumed electricity and all export income, without committing the full capital sum up front.

For many UK companies this is the closest thing to buying the system with the bank's money while still being treated as the owner for tax. That distinction matters, and it is where hire purchase earns its place among the funding routes we help you compare.

How it works in practice

A funder buys the installation on your behalf and you enter a hire purchase agreement to pay it back. Terms typically run from 2 to 7 years. You put down a deposit, often a modest percentage of the total, and the balance plus interest is repaid in fixed instalments. The lender holds legal title to the equipment during the term, which is what secures the facility, but you have full use of the system from day one and take all the generation benefits.

Because the payments are fixed, you know your outgoings for the life of the agreement. Set against a rising or volatile grid electricity price, a predictable finance cost is often easier to plan around. Once the final instalment and the nominal option-to-purchase fee are paid, title passes to you and the remaining years of the panels' 25-year-plus working life generate savings with no further finance cost attached.

Who it suits, and who it does not

Hire purchase tends to suit profitable, tax-paying businesses that want to own the asset and can make use of the capital allowances, but would rather not tie up cash or draw down a bank facility they may need elsewhere. It works well where the roof and load are your own and you intend to stay in the building for the medium term.

It is a weaker fit if you would prefer someone else to carry the performance and maintenance risk, if you cannot use the tax reliefs because you are loss-making or tax-exempt, or if keeping the asset off balance sheet matters to you. In those cases an operating lease or a power purchase agreement may fit better, and a straight capital purchase is worth weighing if you have the cash and want to avoid interest entirely.

The tax and accounting angle

Under hire purchase you are treated as the owner of the equipment for tax purposes from the outset, even though you pay over time. That is the key benefit. You can claim capital allowances on the full cost of the qualifying plant in the year of installation, not just on the instalments you have paid so far, and the interest element of your payments is separately deductible as a business expense.

Solar PV is classed as special-rate plant. That means it does not qualify for 100% full expensing, which is limited to main-rate assets, nor for the 40% first-year allowance. It does qualify for the Annual Investment Allowance, which gives 100% first-year relief on up to £1m of qualifying spend and so covers most commercial installs in full. Where spend exceeds that cap, companies can claim the 50% special-rate first-year allowance, with the balance written down at 6% a year on the reducing-balance basis.

VAT on commercial solar is charged at the standard 20% rate; the 0% domestic rate does not apply to business installations. If you are VAT-registered you can normally reclaim that VAT in the usual way. Separately, rooftop solar used for self-consumption is exempt from business rates in England from April 2022 to March 2035, and exported power can earn income under the Smart Export Guarantee, which replaced the Feed-in Tariff and covers eligible systems up to 5 MW. This is general information, not tax advice; confirm the treatment for your business with your accountant before you commit.

What to watch for

The trade-offs are straightforward. You pay interest, so the total cost is higher than paying cash, and you should compare the effective rate across offers, which is usually priced off a base rate plus a lender margin. The liability sits on your balance sheet, which affects gearing and may matter for covenants. And because you are the owner in substance, you carry the maintenance and performance risk, so a solid installer warranty and a monitoring plan are worth having in place. Check whether early settlement is allowed and on what terms, and read how the nominal transfer fee at the end is set.

Compare it against every other route before you commit

Hire purchase is one of several ways to fund a commercial solar system, and the best choice depends on your tax position, your appetite for risk and what you want on your balance sheet. We are a comparison and quote service, not a lender or financial adviser, and we connect you with vetted MCS-certified installers and funders so you can see the real numbers side by side rather than deciding on principle.

Use the finance calculator to model instalments against your projected savings, read how the funding routes compare to see hire purchase set against the alternatives, then get a costed quote so you can compare hire purchase offers on like-for-like terms.