Solar hire purchase vs lease vs loan calculator

What each column assumes

Hire purchase is a loan against the equipment: you pay the deposit if there is one, then equal monthly payments, and ownership passes to you at the end once any option-to-purchase fee is paid. You own the system from the start for tax, so the business claims the capital allowances and deducts the interest. The solar hire purchase page explains the structure.

The equipment loan amortises the same way but is a straightforward borrowing, often with an arrangement fee and a different security package. The calculator treats it like hire purchase for tax: you own the system, claim the allowances and deduct the interest and fee. See solar equipment loans.

The lease is modelled with a rental that leaves a residual value at the end. Because the funder is not recovering the full cost during the term, the rental is lower than a payment that fully repays the asset. The calculator assumes the funder owns the system and claims the allowances, so the business deducts the rentals instead. Pay the residual at the end and the system is yours; hand it back and it is not. The operating lease page and finance lease against operating lease set out the difference between lease types.

How the tax estimate works

Solar PV is special-rate expenditure. For the ownership routes the calculator takes 100% relief under the Annual Investment Allowance on the first £1m of qualifying spend and the 50% first-year allowance on the excess, multiplies by your tax rate, and adds the tax saved on interest and fees. Full expensing does not cover solar. The capital allowances page works through the numbers and the conditions.

For the lease it deducts the rentals at your tax rate and gives no allowances to the lessee. That is the right assumption for an ordinary lease that is not a long funding lease. Where a lease is a long funding lease, the lessee is treated as the owner and claims the allowances, and this column no longer applies: read long funding leases and solar allowances before using it.

The estimate ignores timing: the allowance is claimed in year one while the payments run for the whole term, so the cash-flow benefit of the ownership routes is front-loaded. It also assumes the business has enough taxable profit to use the relief. If it does not, set the tax rate to zero and compare the gross figures.

What the calculator leaves out

• VAT. All figures are net. Hire purchase and loans normally take the VAT up front; a lease spreads it across the rentals. See VAT on commercial solar.
• Documentation and option fees, which differ by funder and are not in the totals.
• Energy savings. This page compares funding structures. To set a payment against the saving, use the solar finance calculator, and see what a business electricity rate means for the saving.
• Accounting. Under the revised FRS 102 most leases come onto the balance sheet for periods beginning on or after 1 January 2026, so the old off-balance-sheet advantage of leasing has largely gone. The FRS 102 lease changes guide covers it.
• Covenants and guarantees. A lease or loan can carry a director's guarantee or affect covenant headroom. See personal guarantees on solar finance.

Reading the result

If the lease shows the lowest monthly payment but leaves you with no system at the end, it is the structure for a business that wants the use of the system without the capital or the ownership risk. If hire purchase shows the lowest net cost after tax and you have the profits to use the allowance, ownership is doing what it normally does for a taxpaying business. A business with no taxable profit loses the allowance advantage, which can tilt the answer towards a lease or a longer term. Take the two best structures into real quotes and ask each funder for the total cost of credit in writing.

For how the three sit against power purchase agreements, read asset finance versus a PPA. For the choice between renting and owning, see solar panel lease against buying.