Hire Purchase: Solar Asset Finance

Hire purchase is the route most UK businesses choose when they want to own their solar system but would rather not take the full capital cost out of working capital in one hit. You pay a modest deposit (often nothing more than one or two payments in advance), then fixed monthly instalments over two to seven years. Crucially, for tax and accounting purposes you are treated as the owner from day one — which is what makes hire purchase so much more valuable than a Power Purchase Agreement for a profitable company.

Why hire purchase keeps the tax relief with you

When you acquire plant and machinery on hire purchase, HMRC treats the transaction as though you had bought the asset outright for cash. The instalments of capital are ignored; the whole cost qualifies for capital allowances in the period the system is brought into use.

For solar that matters enormously. Solar PV is special-rate (integral-feature) expenditure, so it qualifies for the Annual Investment Allowance at 100% on up to £1m of spend per year, and the 50% first-year allowance on any spend above that. A profitable limited company paying the 25% main rate of corporation tax can therefore recover up to a quarter of the system cost as tax relief in year one — on a £160,000 install, that is up to £40,000 back.

Under a PPA, the funder owns the system and banks that relief instead. Under a finance lease, the lessor usually claims it. Hire purchase is the structure that puts the allowances firmly in your hands. We explain the full picture in our capital allowances guide, and we confirm the treatment with your accountant before you sign.

You also keep the export income

Owning the system means the Smart Export Guarantee payments for any electricity you export are yours, not a third party’s. For sites that aren’t occupied at weekends — offices, many light-industrial units — export can be a meaningful slice of the economics. Add the bill savings and the SEG income together and most hire-purchase deals are structured to be cash-flow positive from month one: the monthly repayment sits below the energy the system saves and earns.

A worked example

Take a Midlands engineering firm installing a 165 kW rooftop system for around £180,000. Funded over six years on hire purchase, the repayments come to roughly £2,950 a month. The system saves and earns about £3,400 a month from day one, so the project is cash-positive immediately. The company claims the full Annual Investment Allowance in year one, keeps all the export income, and owns the system outright from year six — after which the electricity it generates is effectively free for the remaining 19-plus years of the panels’ life.

How the balance sheet looks

Because you are the economic owner, the system goes on your balance sheet as an asset, with the outstanding hire-purchase balance shown as a liability. The asset builds book value; the liability reduces with every payment. Your accountant depreciates the asset over its useful life in the accounts, while the tax relief comes through the capital-allowances route described above. This is standard, well-understood accounting — no surprises for your auditor.

VAT and cash flow

VAT on the equipment is payable up front, but VAT-registered businesses reclaim it in the normal way on the next return. The interest element of a hire-purchase agreement is exempt from VAT. If spreading the VAT across the term is important to your cash flow, a finance lease may suit you better — we model both.

Is hire purchase right for you?

Hire purchase tends to be the best fit when:

• your business is profitable and can actually use the capital allowances;
• you want to own the system and keep the export income and bill savings in full;
• you’d prefer fixed, predictable monthly costs to a single large capital outlay; and
• you’re comfortable with the asset and liability appearing on your balance sheet.

If your business can’t make full use of the allowances — for example a charity, a non-taxpaying body, or a company with little taxable profit — an operating lease where the lessor uses the allowances and discounts the rentals can work out better. And if you have the cash and no better use for it, a straight capital purchase gives the lowest lifetime cost of all. We compare every route side by side, including against a PPA, in our asset finance vs PPA breakdown.

Get a hire-purchase quote

Tell us your roof or site details and recent electricity bills, and we’ll model the system, structure a hire-purchase facility across our lender panel, and show you the total cost of credit in writing alongside the cash and lease alternatives. Request a finance quote — an indicative decision usually takes 24–72 hours.