Beyond the PPA-vs-purchase decision, UK warehouse operators have two additional financing routes — operating lease and finance lease. Each has distinct accounting treatment under IFRS 16 (UK GAAP) and different tax positions. The right choice depends on your accounting standard, balance sheet preferences, and end-of-term plans.
Capital purchase outright
You own the asset from day one. Claim 100% AIA on year-1 capex up to £1m. Asset on balance sheet, depreciates over 25 years. End of life: residual value (typically 30-40% of original capex at year 25). Best for: profitable owner-occupiers and long-lease tenants who can absorb tax shield.
Operating lease (off-balance-sheet)
Third-party leasing company owns the asset; you rent it for 5-10 years at a monthly/quarterly fixed rate. Under IFRS 16, operating leases moved on-balance-sheet for lessees from 2019 onwards — pure off-balance-sheet treatment is now rare. Tax treatment: lease payments are operating expense, fully deductible. End of lease: return asset, extend, or buy at residual value.
Finance lease (on-balance-sheet)
Asset on your balance sheet from day one (similar to capital purchase but with lease finance attached). Under IFRS 16, both operating and finance leases on-balance-sheet for lessees. Tax treatment: depreciation + interest expense, both deductible. End of lease: typically nominal-value purchase to retain ownership.
Decision matrix
Owner-occupier or long-lease tenant + profitable + capex available → Capital purchase. Want spread payments + retain asset → Finance lease. Want operating expense treatment + flexible end-of-term → Operating lease. Loss-making or off-balance-sheet preference + 500 kW+ → PPA (different from leasing).
Common questions about buy vs lease
What's the difference between operating lease and finance lease?
Pre-IFRS 16: operating lease = off-balance-sheet rental; finance lease = on-balance-sheet asset purchase with finance attached. Post-IFRS 16 (since 2019): both on-balance-sheet for lessees. Distinction now mainly about end-of-term ownership: operating lease typically returns asset; finance lease typically retains via nominal-value purchase.
Should we lease or buy outright?
Owner-occupiers with capex availability and profitability: buy outright (maximises AIA tax shield, retains residual value). Mid-range businesses without large capex: finance lease (spread payments, retain asset). Short-term occupiers or accounting-driven preference: operating lease or PPA.
How does PPA differ from leasing?
PPA: pay per kWh consumed (variable, tied to generation). Leasing: pay fixed monthly rental regardless of generation. PPA shifts generation risk to third-party; leasing keeps generation risk with offtaker.