VAT on Solar Panels

Solar panels are an excellent way to produce free, clean electricity for your home and save money on energy bills.

However, with over 55% of UK households still struggling with the ongoing cost of living crisis, solar panel prices can make them out of reach for many.

Thankfully, the UK government introduced various measures to make solar panels more affordable, including a 0% VAT on solar panels and other energy-saving materials (ESMs).

Here’s everything you need to know about the current VAT on solar panels, including eligibility, how long it will last, and any available exemptions.

Quick Takeaways:

The UK currently has a 0% VAT on solar panels for residential and charitable buildings.
Scrapping of VAT on solar panels aims to reduce the cost of installing solar panels.
The zero rate will run until 31 March 2027 and move to 5% VAT.
Solar batteries also qualify for 0% VAT relief whether you’re installing them simultaneously with the panels or adding them to an existing system.

What is the VAT on Solar Panels in the UK?

The VAT on solar panels in the UK is currently 0% for residential property installations.

The zero-rate VAT for installing energy-saving materials (ESMs), including solar panels, was introduced in April 2022.

At the time, it only applied to England, Scotland and Wales. In May 2023, the UK government extended the zero-rate measure to Northern Ireland following the ratification of the Windsor Framework.

What is the Aim of the 0% VAT on Solar Panels?

The scrapping of VAT on solar panels aims to reduce the cost of installing solar panels, which many UK households find expensive.

The move helps increase the uptake of green energy in UK homes to improve energy efficiency and potentially prevent people from paying excessively on their energy bills.

It’s part of the government’s goal to improve the energy efficiency of the UK housing stock.

Increasing the proportion of energy provided from low-carbon sources like solar panels will help in achieving the legally binding commitment to reach net zero greenhouse gas emissions by 2050.

In a December 2023 government response, Nigel Huddleston MP, UK Financial Secretary to the Treasury, noted that the VAT relief “Will enable more households to install ESMs, improve the energy efficiency of their homes, and thereby reduce their energy bills. Focusing on reducing costs for UK families will help to deliver on the government’s pragmatic, proportionate, and realistic path to reach net zero by 2050.”

How Much Can the 0% VAT on Solar Panels Save?

The 0% VAT relief makes buying and installing solar panels in your home cheaper. In the Spring Statement 2022, Chancellor Rishi Sunak noted that a family installing a solar panel would see tax savings worth £1,000 and savings on their energy bill of over £300 per year.

It’s important to note that most installers have had to raise their prices due to rising inflation. Although the relief has made solar panels slightly cheaper, it’s not by much.

For example, buying a 3.5-kilowatt (kW) solar PV system under the old 20% VAT rate would cost around £7,860.

Under the current 0% VAT, you would pay around £7,000 for the same system.

How Long Will the 0% VAT on Solar Panels Last?

The reduced rate came into effect on 1 April 2022 and will run until 31 March 2027 unless the government introduces further legislation to extend its implementation.

The VAT on solar panels will then increase to 5%, meaning it won’t return to the standard 20% rate.

Before, the 5% VAT rate only applied to certain conditions, such as domestic installations, for people receiving specific benefits or those above 60.

After the 0% VAT relief ends, the 5% rate will apply to solar panel installations on any residential property. You won’t need to meet any of the previous criteria to qualify.

What are the Criteria for 0% VAT on Solar Panels?

The 0% VAT applies to installing solar panels on residential accommodations and charitable buildings.

For example, you can employ a company to install energy-saving materials you purchase directly from a retailer.

It also applies to the solar panels supplied by the person or business installing them on charitable or residential buildings.

For example, when you employ a business or company to supply and install solar panels.

The solar panels must be new and not secondhand to qualify.

Related reading:

What are the Exemptions?

Commercial installations will not qualify for the 0% VAT on solar panels, so the property must not be used for commercial or business purposes.

Suppliers will also pay the standard rate if they only supply the solar panels without installing them.

This means the standard 20% VAT rate will likely be included in the purchase price if you buy solar panels from one provider and have them installed by someone else.

Additionally, if you buy the solar panels from a retailer and install them yourself, you cannot claim the 0% VAT.

MCS-approved installers are required to perform the installation, and it’s not recommended to do DIY on solar panels because it can be dangerous and will likely result in sub-standard work.

Does the 0% VAT Apply to Solar Batteries?

Yes. Since February 2024, solar batteries have qualified for the 0% VAT relief, whether you install them with solar panels, retrofit them to an existing solar panel system, or install them as a standalone technology connected to the grid.

Previously, you had to install them with solar panels to qualify for the 0% VAT relief, meaning you’d pay the standard 20% rate if you added them later after installing the panels.

After consultations with relevant stakeholders, the government recognised that batteries qualify for VAT relief in their own right since they can help reduce reliance on the grid and cut down carbon emissions and energy bills. Therefore, you’ll not pay any tax for solar batteries.

How Do You Apply for 0% VAT on Solar Panels?

You don’t need to make any application for 0% VAT on solar panels. Your installer will automatically apply the 0% VAT if the installation qualifies.

However, you must use a trustworthy and qualified MCS-approved installer to install your solar panels according to recognised industry standards.

Final Thoughts

Thanks to the 0% VAT on solar panels, now is the best time to consider investing in a solar panel system before the zero-rate relief ends in 2027.

The relief makes it cheaper to switch to a greener, cleaner energy source that can help reduce your carbon footprint while cutting your energy bills significantly for decades.

Sources and References

https://www.statista.com/statistics/1300280/great-britain-cost-of-living-increase/
https://www.gov.uk/government/consultations/vat-energy-saving-materials-relief-improving-energy-efficiency-and-reducing-carbon-emissions/outcome/summary-of-responses
https://www.gov.uk/government/speeches/spring-statement-2022-speech