Can a sole trader finance solar panels?

Most UK businesses are not companies. At the start of 2025 the Department for Business and Trade estimated 3.2 million sole proprietorships, 57% of the UK private-sector business population, alongside 2.1 million actively trading companies (37%) and 368,000 ordinary partnerships (6%). Guides to solar panel finance usually speak either to homeowners or to limited companies. This one covers what changes when the borrower is you, or you and one or two partners.

Which finance routes a sole trader can use

All of them, in principle. The British Business Bank says asset-based lending can be a viable option if your business can meet its financial commitments, whether you are a sole trader, in a partnership, running a limited company or launching a start-up, and that leasing and hire purchase have few restrictions on who or what type of business can apply. Public schemes include sole traders too: the Growth Guarantee Scheme is open to sole traders through accredited lenders, and in Wales the Development Bank of Wales Green Business Loan Scheme accepts sole traders and partnerships based in Wales that have traded for at least two years with at least one set of filed accounts. For early-stage businesses in their first three years of trading, the British Business Bank also points to its Start Up Loans programme, which lends £500 to £25,000 at 7.5% a year as a government-backed personal loan.

• Cash. Buying outright keeps every saving and needs no credit decision, but uses money the business may need for stock or tax bills.
• A business or green loan. You own the system from day one; see business and green loans for solar.
• Hire purchase. A deposit, fixed payments and ownership at the end; see hire purchase for solar.
• A lease. The funder owns the panels and you pay rentals; see the operating lease guide.
• A PPA. A provider owns the system and sells you the electricity; see power purchase agreements. Providers decide which sites and customers they take on, so ask early if your roof is small.

If you work from home, one household scheme can overlap. The Warm Homes Loan Scheme lends only on a personal lending basis to owner-occupiers of existing domestic properties and to private landlords, and its rules say lending to business or SPV type structures will not be allowed. But where a property is both a home and a place of business, an installation is eligible if it is principally intended to meet the household's energy needs, and running a business from home does not by itself make the property ineligible. A workshop or unit that is not a dwelling falls outside it.

When a sole trader's borrowing is regulated

This is the biggest legal difference from a company. The consumer-credit regime in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 covers credit agreements where the borrower is an individual or a "relevant recipient of credit". A sole trader borrows as an individual. A relevant recipient includes a partnership of two or three persons not all of whom are bodies corporate. A limited company, or a partnership of four or more, is outside the definition.

For those borrowers, size and purpose decide. Under article 60C of the Order, a credit agreement is exempt where the credit exceeds £25,000 and the borrower enters into it wholly or predominantly for the purposes of a business; the FCA's Perimeter Guidance sets out the same test. Credit of £25,000 or less taken for business purposes stays regulated unless a narrower exemption applies. A business-purpose declaration in the agreement creates a presumption that it is for business, unless the lender knows or has reasonable cause to suspect otherwise, so read the declaration before you sign it.

Two details matter for solar. Under hire purchase the credit is the total price less any deposit and the total charge for credit, not the headline price of the system. Leases follow a parallel rule: a hire agreement that can last more than three months is exempt only where the hirer must pay more than £25,000 and takes it wholly or predominantly for business purposes.

If your agreement is regulated, you gain protections a company does not get. You can withdraw from a regulated consumer credit agreement within 14 days without giving a reason, and you can settle early: in full at any time, and in part unless the agreement is secured on land. When a quote sits near £25,000, ask the lender which regime applies.

Personal liability: the debt is yours

This is where a sole trader differs most from the owner of a limited company. GOV.UK states that sole trader businesses have unlimited liability, which means owners are personally responsible for all of the debts of the business. In a partnership, the partners personally share responsibility for the business, including any losses and the bills for things bought for it, such as equipment.

That changes how to read the security on offer. Asset finance is secured on the equipment itself, and falling behind can lead to the funder repossessing it; defaulting can also harm your credit report. Under a personal guarantee, the British Business Bank notes, personal assets such as your home, car and savings can be used to settle business debts, and for a sole trader those assets were exposed to the business debt in any case. One protection is worth knowing: on Growth Guarantee Scheme facilities, lenders cannot take your principal private residence as security.

Tax relief for an unincorporated business

The AIA, yes; the 50% first-year allowance, no

HMRC designates capital spending on solar panels as special-rate expenditure. The Annual Investment Allowance lets you deduct the full value of qualifying plant from profits before tax, up to £1 million a year, and it applies to sole traders and partnerships as well as companies, although it is only available to partnerships whose members are all individuals. The 50% first-year allowance for special-rate plant, like full expensing, is limited to companies subject to corporation tax. The 40% first-year allowance on expenditure from 1 January 2026 is open to income-tax payers, but special-rate expenditure such as solar does not qualify. The AIA guide and the wider capital allowances guide have the detail.

Private use matters more for a sole trader than for a company. GOV.UK says you cannot claim the full value of items you also use outside your business if you are a sole trader or partnership, and must reduce the allowances by the amount of non-business use. Panels on a building that is partly your home are the obvious case, so agree the split with your accountant.

Income tax, not corporation tax

A sole trader's profits go through Self Assessment, and HMRC works out Income Tax and National Insurance contributions on those profits. Outside Scotland, income tax is 20% on taxable income from £12,571 to £50,270, 40% up to £125,140 and 45% above; Scottish bands differ. For 2026 to 2027, Class 4 National Insurance is 6% on profits between £12,570 and £50,270 and 2% above that. A company pays corporation tax instead, at 19% on profits of £50,000 or less and 25% on profits over £250,000. So the same allowance is worth a different amount depending on who claims it.

Illustrative only: a sole trader in England on traditional accounting, with trading profits of £45,000 and no other income, claims the AIA on a £15,000 system. Profits fall to £30,000, all within the basic-rate band, so income tax falls by £3,000 (£15,000 × 20%) and Class 4 National Insurance by £900 (£15,000 × 6%), £3,900 in all. A higher-rate taxpayer would save more. Check your own figures with your accountant.

The cash basis changes the mechanics

GOV.UK describes cash basis accounting as the standard way to record income and expenses for a sole trader or a partnership without corporate partners. Under it you can only claim capital allowances on business cars; you claim the cost of other equipment you buy to keep and use in the business as an allowable expense instead. There is a catch for long-lived kit. HMRC's manual explains that no deduction is allowed for capital spending on an asset that is not a depreciating asset, meaning one whose useful life will not end, and which will not lose 90% or more of its value, within 20 years of the expenditure. Equipment fixed to land, such as roof panels, is not blocked by the separate land rule if it is a depreciating asset, unless the spending is on the building itself or parts such as its walls, floors, ceilings, doors or windows. Whether a solar system passes the 20-year test is a question to settle with your accountant before you rely on the deduction; traditional accounting, where the AIA applies, is the alternative.

VAT is often a real cost

Only 12% of sole proprietorships, and 44% of ordinary partnerships, were registered for VAT and/or PAYE at the start of 2025, so most sole traders cannot reclaim the VAT on an installation. Registration becomes compulsory when taxable turnover for the last 12 months goes over £90,000. If you are registered, you can reclaim VAT on items bought for use in the business, but only the business proportion where something is also for personal use; see VAT reclaim on business solar. Where the panels go on your home, the installation of energy-saving materials in residential accommodation is zero-rated until 31 March 2027; on business premises that relief does not apply.

What lenders will ask a sole trader for

The checks follow the business and the project. For leasing and hire purchase, the British Business Bank says the biggest factor in approval is proving that you can make the payments, and providers can also consider the revenues the asset may generate; your credit rating matters too. Because the cash basis does not show what you owe and are owed, GOV.UK notes that a bank could ask to see accounts drawn up on the traditional basis before agreeing a loan. Expect questions about the building as well: whether you own it or rent it, how long you can stay, and whether your landlord agrees. For solar PV up to 50 kW, Smart Export Guarantee payments depend on showing that both the installation and the installer are suitably certified, for example under MCS. The full list is in what lenders check before funding business solar.

The honest limits

This guide does not quote lender rates, because they vary by lender and by borrower. It cannot tell you whether your system passes the cash-basis 20-year test, how to split a home-and-business installation, or whether a particular agreement is regulated; those turn on your accounts, your building and the paperwork. What it can do is tell you which questions to ask. Once you have them answered, put the payments and savings side by side in the finance calculator and compare at least two routes before you sign.

Questions business owners ask

Can a sole trader claim the 50% first-year allowance on solar panels?

No. The 50% first-year allowance, like full expensing, is limited to companies subject to corporation tax. A sole trader can claim the Annual Investment Allowance on up to £1 million a year, reduced for any private use. The 40% first-year allowance is open to income-tax payers, but special-rate expenditure such as solar does not qualify.

Is a sole trader's solar loan regulated by the FCA?

It can be. Consumer-credit rules cover individuals, which includes sole traders, and partnerships of two or three people that are not all companies. Credit of more than £25,000 taken wholly or predominantly for business purposes is exempt; £25,000 or less can be regulated, which brings a 14-day right to withdraw and the right to settle early.

Do I need a personal guarantee as a sole trader?

In effect you are already liable: GOV.UK states that sole traders have unlimited liability for the debts of the business, and partners personally share responsibility for losses and bills. Asset finance is secured on the equipment, and on Growth Guarantee Scheme facilities lenders cannot take your principal private residence as security.

Can I use the Warm Homes Loan Scheme for my business?

Only for a home. The scheme lends on a personal basis to owner-occupiers of domestic properties and private landlords, and does not lend to business or SPV type structures. Where you run a business from home, an installation can still qualify if it is principally intended to meet the household's energy needs.

Does the cash basis change how I get tax relief on solar panels?

Yes. Under the cash basis you can only claim capital allowances on business cars, and other equipment is claimed as an allowable expense, but no deduction is allowed for capital spending on an asset that is not a depreciating asset under a 20-year test. Agree the treatment with your accountant; under traditional accounting the AIA applies.