Buy the system, lease it, or sign a power purchase agreement (PPA). Each route moves cash, ownership, tax relief and risk to a different place. Buying gives you the whole return and the tax allowances, but you pay up front and carry the risk. A PPA needs no capital and moves maintenance to the developer, but you host the developer’s system for decades and keep less of the saving. A lease sits between them, and its tax and accounting treatment is the part most guides skip.
The three routes at a glance
| Outright purchase | Equipment lease | PPA | |
|---|---|---|---|
| Upfront cost | Full cost, or a loan | Little or none | None |
| Owner | You | Usually the lessor | The developer |
| Capital allowances | You claim them | Usually the lessor, sometimes you | Not you |
| Maintenance | You | Set by the contract | The developer, for the term |
| Typical term | You own it | Set by the contract | 10 to 25 years |
| What you pay | Running costs | Rentals | A price per kWh used |
| Balance sheet | Asset, plus any loan | Usually asset and liability from 2026 | Depends on the contract |
Buying outright
Ownership gives you the savings, the export income and the tax relief. HMRC treats all spending on solar panels as special rate expenditure, so full expensing does not apply. Most buyers use the Annual Investment Allowance, which is £1 million a year across all qualifying spend. Companies get a 50% first-year allowance on the rest, and the balance goes into a pool at a lower rate. Our post on why solar does not qualify for full expensing sets out the order of relief.
You also carry the risks. Inverters wear out, panels degrade, insurers ask questions and roofs need access. See how solar changes your insurance and panel degradation and warranties.
Leasing the equipment
In a lease you pay rentals for the system. Normally the owner claims the capital allowances, and the owner is the lessor. There is an exception for what HMRC calls a long funding lease. In its Business Leasing Manual, HMRC says that for such a lease the lessee is treated as having incurred the capital expenditure and so can claim the allowances. The test for a long funding lease has several parts, set out from BLM20105. Do not assume your lease falls on one side or the other. Ask your accountant to apply the test to the actual contract.
Accounting has changed too. The FRC says the rewritten FRS 102 section on leases applies from 1 January 2026 and removes the operating and finance lease split for lessees. Most leases now go on the balance sheet as a right-of-use asset and a lease liability. Short-term leases of 12 months or less, and leases of low-value assets, are exempt.
A power purchase agreement
Under a PPA a developer installs, owns and maintains the system and sells you the power. Solar Energy UK says the developer keeps responsibility for operating and maintaining it for the whole term, and at the end the customer can remove the system, extend the PPA or buy it. Because you own no asset you claim no allowances. The developer takes them, and they are reflected in the price it offers.
The accounting treatment turns on substance. The FRC factsheet notes that a contract can meet the definition of a lease even if it is not called one, where it in substance gives a right to control the use of an identified asset. A PPA that simply sells kilowatt-hours may be a service. A PPA that gives you the whole output of a named array with little room for the developer to substitute equipment needs a closer look from your auditor. Get an opinion before you sign.
An illustrative comparison
The numbers below are invented to show the shape of the choice. They are not quotes.
Assumptions: a 100 kWp system costing £100,000; 63,000 kWh used on site and 27,000 kWh exported each year; grid power worth 25p per kWh; export worth 5p per kWh; running costs of £1,500 a year if you own it; a PPA price of 15p per kWh for power used on site, with the developer keeping the export. Panel ageing, price changes and tax relief are ignored.
| Buy | PPA | |
|---|---|---|
| Upfront | £100,000 | £0 |
| Yearly benefit | £15,600 after running costs | £6,300 (63,000 kWh at 10p cheaper) |
| Simple payback | 6.4 years | Not applicable |
| 20-year net gain | £212,000 | £126,000 |
Buying looks better on the headline figure, but only if you can fund it and use the tax relief. The PPA gives up part of the return in exchange for no capital and no maintenance risk. The right choice moves with your cost of capital and with the PPA price, so run your own figures.
Five questions that decide it
- Do you have unused Annual Investment Allowance this year? If so, buying captures relief that a PPA cannot give you.
- What does your capital cost, compared with the rate built into the PPA price? A PPA is a form of borrowing.
- How will new lease liabilities affect your lending covenants? The 2026 accounting rules can add one.
- Do you want to carry 20 years of maintenance, or hand it over? Price the service against your own maintenance budget.
- What happens at the end? Ask for the buy-out, removal and renewal terms in writing before you sign. The due diligence checklist lists what to check, and our note on contract dispute remedies shows why.
Getting advice before you commit
A well-funded business with unused allowance often does better by buying. A business that wants no capital outlay and no maintenance risk may prefer a PPA even at a lower lifetime return. We model all three against your tax position and balance sheet and review the heads of terms with our PPA and financing advice. The energy and ROI modelling service builds the savings figures those comparisons rest on. This article is general information and not tax or accounting advice.
Since each route moves risk to a different party, compare them on one basis. Our PPA and financing advice reviews the terms, while energy and ROI modelling prices each route over its full life. A feasibility study confirms the site, and procurement and tender support runs a fair competition between funders or installers.