Solar panel lease vs buy: the commercial comparison

Almost everything written on this question is written for a homeowner, or for the American market where the tax rules are different. For a UK business the decision turns on four things: who claims the capital allowances, when the VAT falls due, what the accounts show, and what you own at the end.

What counts as "buying" for a business

Three routes are ownership routes, and they are treated the same way for tax:

• Cash purchase. Lowest lifetime cost, no interest, full allowances.
• Hire purchase. You are treated as the owner from the start, so you claim the allowances on the full cost from day one, even though title passes at the end of the term.
• Equipment loan. You buy the system and borrow against the business, so you own it from day one.

Two are leasing routes: a finance lease, where the asset sits on your balance sheet but the funder owns it, and an operating lease, where the funder keeps the residual value and the rentals are lower. A power purchase agreement is a third thing again — you buy electricity rather than an asset — and is compared separately.

The tax fork, which is where the money is

Solar PV is special-rate expenditure in its own right under section 104A(1)(g) of the Capital Allowances Act 2001, and HMRC's manual at CA22335 says the same. That means:

• If you own it: the Annual Investment Allowance gives 100% relief on up to £1m of qualifying spend a year. Above that, a company buying new and unused equipment can claim the 50% first-year allowance, with the balance entering the special-rate pool at 6% a year. Solar does not qualify for full expensing — that relief is main-rate plant only.
• If you lease it: the funder normally owns the equipment and claims the allowances, pricing the benefit into the rentals, and you deduct the rentals instead. Where the panels are fixed to your building, the funder's claim needs a joint election with you under section 177.
• The long funding lease exception: broadly a finance-type lease of more than seven years, or any sale and finance leaseback, makes the lessee the owner for capital allowances — but then only the interest element of each rental is deductible, not the whole payment.

For a company paying the 25% main rate of corporation tax, owning turns up to a quarter of the qualifying cost into tax relief in year one. That is the single biggest number in the comparison, and it only exists if the business has taxable profit to set it against. Our capital allowances guide works through the detail.

VAT and the balance sheet

Two practical differences that rarely appear in consumer comparisons:

• VAT timing. Buying — including on hire purchase or a loan — means the equipment VAT is payable up front and recovered in the normal way if you are VAT-registered. Leasing charges VAT on each rental, spreading it. If you recover all your input VAT the net cost is much the same and only the timing differs — but a lease charges VAT on the whole rental, finance charge included, so the VAT charged is higher, which is a real cost if your business is partly exempt.
• The accounts. The old reason for leasing was to keep the asset off the balance sheet. Under the revised FRS 102, for accounting periods beginning on or after 1 January 2026, most leases sit on the lessee's balance sheet as a right-of-use asset with a matching liability, with short-term and low-value exemptions a multi-year solar lease will not usually meet. That applies to companies reporting under FRS 102; micro-entities reporting under FRS 105 are unaffected, so their operating leases stay off balance sheet, and an unincorporated business reports under neither. For an FRS 102 company, then, the off-balance-sheet argument has largely gone.

Cost per kWh: comparing on the same unit

A lease is quoted monthly and a purchase as a capital sum, so convert both to cost per kilowatt-hour across the system's life. Illustrative figures for a 165 kW rooftop system costing £160,000 and generating roughly 148,500 kWh a year:

Run the owned side on the solar finance calculator, then ask the lessor for the total of the rentals and any end-of-term figure. Divide each by the generation you expect over the same period. The number that matters is not the monthly payment; it is pence per kilowatt-hour, plus what you hold at the end.

When leasing is the better answer

Leasing is not the poor relation. It is the right choice when:

• the business has no taxable profit, so the allowances are worth nothing to it;
• capital expenditure is constrained or requires approvals that a rental does not;
• the lowest possible monthly figure is the binding constraint, which an operating lease usually gives; or
• you want the funder to carry residual-value risk on the equipment.

What happens at the end

This is the part that decides the twenty-year picture. Buy, and after the finance term the electricity is effectively free for the rest of the system's life, and the asset can later be refinanced or sold and leased back if you want the capital out. Lease, and at the end of the primary term you continue at a secondary rental, return the system, or negotiate a purchase — and if you do buy it, you start the allowances conversation then rather than at the outset. If you already hold a lease and want out, our guide to getting out of a solar panel lease sets out the routes.

How to decide in one sitting

1. Ask your accountant whether the business will have taxable profit in the year of installation. If yes, ownership starts ahead.
2. Get the installed cost and a yield forecast from your installer.
3. Model hire purchase and a lease over the same period, converting both to cost per kWh.
4. Check the VAT timing against your cash-flow forecast.
5. Confirm what each option leaves you holding in year eight, and what the export income does under each.