VAT on solar panels: A complete overview (UK)

With VAT on solar panels, installing energy efficient systems in the UK could be more affordable than ever. In fact, here’s the good news: the UK government has rolled out some appealing financial incentives for photovoltaics to make the switch easier than many homeowners could dream of.

One of the most important changes that has been introduced is a zero rate VAT on solar panel installations for residential accommodation. But what exactly does this mean for you as a homeowner?

On this page, you’ll learn:

• The current VAT rates for solar panels and other energy-saving materials
• Why the UK government has introduced a zero-rate VAT
• How VAT affects both residential and commercial installations
• What changes are coming after the zero-rate period ends
• VAT implications for solar batteries and other energy-efficient solutions
• …And so much more!

It’s important to understand the VAT status and how it impacts your installations. At Soly, we understand that this can be a bit complex, but don’t worry, we’ll break it down for you. When it comes to understanding how to save on install costs, or navigate the rules for installing energy efficient solar PV systems and upgrades, we’ve got you covered.

Let’s get started with a closer look at how VAT on solar panels works and what it means for your renewable energy goals!

Is there VAT on solar panels?

In the UK, if you’re looking to install PV panels on your home, you will find yourself in luck. The UK government is offering a zero rating VAT on solar panels for residential properties until 31 March 2027.

In fact, the government’s list of Energy Saving Measures (ESMs) outlines the criteria that must be met for 0% VAT on panels.

This means you will not pay any VAT on the cost of the panels or the install. This 0% VAT is part of the government push to make green products more accessible and the upfront cost more affordable for home owners.

The main goal of this UK policy is to reduce the financial burden that homeowners face when switching to green energy while promoting sustainable energy goals.

DID YOU KNOW… There’s now a Zero rating VAT reg for homeowners. This means potential savings for households looking to make the switch.

VAT rates and eligibility in the UK

When we look at the Zero rate and eligibility in the UK, it’s important to understand that the policy was originally introduced in April 2022 by the UK gov and applied to residential accommodations across England, Scotland, and Wales.

As of 1st May 2023, the VAT policy was extended to Northern Ireland and is set to last until 31 March 2027. This initiative is designed to lower the costs that come with installing solar systems so that they can be more affordable and thereby encourage their adoption across the UK.

Why did the UK government cut VAT on solar panels?

The government cut VAT on solar panel systems to encourage more homeowners to make the switch to renewable energy-saving materials. This move is part of a broader effort to promote energy efficiency and reduce reliance on traditional power sources. By lowering VAT, the government aims to make solar installation costs more affordable, while also helping support the transition to cleaner energy amidst the ongoing cost-of-living crisis.

In fact, it can cut energy usage by up to 70% annually.

Additionally, it’s encouraging that the government aims to increase its commitment towards net zero by 2050. Using renewable electricity means lower greenhouse gas emissions, which helps to slow climate change.

Here are some of the best ways renewable technologies can help reduce your electricity costs:

• Lower energy bills: PV panels can significantly reduce your energy bills because you’re generating power from the sun’s rays.
• Energy efficiency: Technologies such as heat pumps use less energy to heat your home compared to traditional systems. This is because they move heat rather than produce it.
• Reduced peak demand: When you produce your own electricity, you can minimise the amount you buy from the grid during peak times when prices are higher.
• Long-term savings: Renewable energy systems like PV panels and heat pumps cost less to operate and can provide savings for years to come, which can offset the initial costs over time.

Keep on reading: Pros and cons of solar panels

No VAT on energy efficient measures for the next 5 years!

The UK released ten new policy proposals in a government’s list to address rising energy bills, including measures to help families reduce their energy costs by introducing new policies. It focuses on helping households through measures like improving home energy efficiency.

The government announced the country will eliminate 5% of the value of goods and services by 2025, aimed at reducing electricity costs.

According to eco experts, like Joshua M. Pearce, this policy shift aligns perfectly with the benefits of investing in energy saving technology.

Pearce states that, “the recent cost drops in solar photovoltaics have been so massive that our research has shown solar powered air-source heat pumps finally make economic sense for the average home even in colder climates.”

With the UK government’s decision to scrap the VAT, now is the best opportunity for homeowners to improve their energy efficient systems while also making a positive impact on the environment.

The standard VAT rate reduction aims to make solar panels and other energy efficient measures more affordable. In turn, this should encourage their use across the board.

Exceptions and considerations

The UK government’s decision to apply a Zero rate VAT on solar panel installations provides significant financial relief:

• ✅ The reduction to a zero-rate VAT for solar has made solar energy systems more affordable for homeowners.
• ✅ The 0% VAT rate has resulted in substantial savings for consumers.
• ✅ The reduced cost of solar has helped reduce overall costs.
• ✅ Homeowners can benefit from the reduced rate of a solar panel system.

However, there are a few exceptions:

• ❌ If solar panels are bought from one supplier and installed by another, or if they are secondhand, the standard 20% VAT rate applies.
• ❌ Maintenance and repairs post-installation are also subject to the standard VAT rate.
• ❌ The policy does not apply to commercial installations or separate purchases and installations.
• ❌ Northern Ireland has a reduced VAT rate of 5% for solar panels and energy-saving materials, with restrictions for residential accommodation.

It’s important to understand these exceptions and considerations to avoid unexpected costs. When combined with certain benefits, and energy saving products, the 0% VAT policy provides an incredible way to reduce energy bills and invest in renewable energy.

There are additional ways to save and reduce your energy costs, such as:

• Government Grants: You can look into schemes like the smart export guarantee (SEG). The smart export guarantee pays homeowners for excess solar energy exported back to the grid
• Energy Company Obligation (ECO) Scheme: This UK initiative offers support for energy saving products and improvements, particularly for lower-income households.
• Home Energy Scotland Loan (Scotland residents): This residential accommodation offers those in Scotland interest-free loans to pay for solar panels, and other energy saving materials.
• Solar Battery Storage: Adding battery storage to your system is another great way to save with your solar system. You can store excess energy for use during peak hours or at night, which reduce your reliances on the grid.
• Renewable Heat Incentive (RHI): If you combine your solar panels with energy saving supplies and technologies like solar thermal systems or heat pumps, you may be eligible for payments through the RHI scheme.

VAT charges for residential solar panel installations

As mentioned, for residential solar panel installations, the current VAT rate is 0% until March 31, 2027. This means that households can install solar panel systems without paying VAT standard rate on the price of the panels or installation.

However, there are a few exceptions.
This VAT exemption only applies if the installation is done by an MCS approved installer.

Additionally, the property must be residential and doesn’t apply to non-residential buildings. This means if you buy the panels separately or if the install process is handled by a different provider, the 20% VAT charge may apply.

VAT charges for commercial solar panel installations

The VAT rate for installing solar panels is different for commercial properties. The rate for renewable sources VAT policy does not apply in the case of commercial install process, so generally, the standard VAT rate of 20% applies. This would mean companies looking to install solar panels will have to consider this added cost and pay VAT for commercial installations.

It is, therefore, important for a company to be in a position where they will grasp the VAT implications of their solar panel installation. Businesses should talk with a tax professional or an expert to ensure complete compliance and maximise the financial benefits derived from investing in solar energy. Proper planning, combined with a good understanding of the standard VAT rate helps manage the costs effectively.

VAT on solar batteries and other energy-efficient solutions

Solar batteries, when installed alongside solar panels, initially benefited from the 0% VAT rate.

From February 1, 2024, standalone solar storage batteries will also qualify for the 0% VAT rate. This change aims to promote greater adoption of energy storage solutions, making it easier for residences to store and use solar energy.

The UK’s approach to VAT rate on solar batteries reflects the commitment to support renewable energy and enhance energy efficiency. To this end, the government encourages access to more affordable solar batteries that would inspire or influence the commitment to residents who invest in integral solar energy systems with storage solutions that, in reality, lead to more sustainable energy use.

How long does 0% VAT last?

These tax rules on solar panels are a temporary measure, and is set to last until 31 March 2027, as mentioned above. It is assumed that from this date onwards, the supplies of solar panels will revert to their original, lower rate of 5% VAT. The change in policy is consistent with wider financial priorities and goals on renewable energy.

This will provide a temporary rate of 0% VAT as an incentive for the adoption of solar energy during the most crucial period.

As this policy nears the end date, all residents who would like to engage with the product at this time should be aware that they still have VAT benefits they should take full advantage of to save more and invest in renewable energy.

What was the VAT rate on solar before the reduction?

Before introducing 0% VAT for solar panel installations in the United Kingdom the VAT rates were variable – generally 5% or 20%, according to a certain criteria.

Under certain circumstances VAT 5% may previously have been charged to individuals over 60 or to certain beneficiaries of certain benefits. All other customers paid 20% VAT. In Northern Ireland it depends how your cost is split between products and labour costs.

How does the UK’s solar VAT rate compare with the rest of Europe?

The UK has a competitive VAT rate on solar panels compared to most other European countries. Most European countries have reduced the VAT rate on solar installations to encourage the use of renewable energy. Specific rates may vary across Europe. However, many have recently adopted a zero rate VAT.

To see how other countries compare, here’s a brief look:

• Italy: For solar, Italy applies a reduced rate VAT of 10%.
• Germany: In 2023, Germany reduced it’s VAT reg to zero on solar. This is available to homeowners looking for a residential solar system up to 30 kW.
• Austria: On 1 January 2024, Austria added a zero VAT on solar that lasts until the end of 2025. This applies to solar systems up to 35 kW.
• Netherlands: In the Netherlands, the rate is now 0% VAT. The standard is 21%.
• Belgium: In Belgium, homes that are less than ten years old have a reduced rate VAT of 6%. The usual rate is 21%.

The UK’s VAT approach underlines their commitment to support solar energy and cut costs for residents. Additionally, their approach being adopted by other countries suggests that being informed of the VAT policies in different regions is very important so you don’t miss out on any incredible benefits!

Next steps

The VAT on solar panels is important for all those who would like to invest in solar energy. Although the rules on tax are partly incomprehensible, the possible long-term savings, added to the environmental benefits, make solar panels a worthy investment.

Homeowners can take advantage of current VAT rates and cut down on upfront costs, allowing them to enjoy the benefit of renewable energy sources sooner.

This means investment in solar energy will bring the bills down, while also contributing to a greener, more sustainable future. It’s an excellent idea to speak with a solar expert to better understand how VAT affects your investment to ensure you maximise the financial and environmental benefits of going solar.

FAQ

Is there VAT on solar panels?

Currently, solar panels installed in residential properties benefit from a 0% VAT rate until 31 March 2027. This means no VAT is charged on the cost of solar panels or their installation if done by an MCS-approved installer.

Do you pay VAT on new solar panels?

No, there may not be any tax on solar installations either. For example, you will not pay standard VAT on panels when they are supplied and installed by a VAT-registered installer.

When was VAT removed from solar panels?

On 1 January 2020, the exemption became available for installation dealing with energy saving materials in homes looking to meet their renewable energy goals.

How long will the 0% VAT rate last?

The 0 % VAT policy will last until 31 March 2027. After this date, the rate should be expected to increase up to 5%, in line with other financial policies.

Is there VAT on solar panel income?

Taxation of solar panels income varies depending on their installations and usages. In case of a domestic installation signed to export tariffs, you will receive restitution of the surplus electricity that you sent into the grid. Typical tax is paid for generating electricity for the use of the house. But for businesses and property, the solar panel revenues are taxed, including feed-in tariffs.

Can I claim solar panels on tax in the UK?

Yes, an Annual Investment Allowance (AIA) is an allowance which provides tax relief to any business owners for acquiring assets that are not needed for its operations. Luckily, solar energy panels are considered eligible for such an allowance.

Does 0% VAT apply to solar batteries?

Yes, you’re eligible for the Zero rate VAT if you purchase standalone storage batteries or install solar cells. This regulation changed in February 2024 and enables the policy to be used on a single storage battery whether buying solar panel supplies or not.

Final thoughts

Great Britain has taken a huge step in the right direction toward renewable energies and, more precisely, toward making them more accessible to own with this incredible Zero policy for VAT on solar panels.

As energy prices go up, investing in solar brings greater potential for savings on household energy bills, whilst also contributing to a greener future.

With the 0% VAT in place, there couldn’t be a better time to invest in and install solar panels. This program will not only reduce energy bills but also help to contribute toward the UK’s promise of net zero emissions by 2050.

For maximum benefits and success in the installation process, make sure you work with certified, MCS approved installers. After all, an investment in solar energy today might pay dividends for long periods, both for your wallet and the environment.

Why choose Soly?

Thanks to the UK government’s new 0% VAT on solar panels, there has never been a better time to invest in solar energy. Soly makes this saving even easier for a household to take advantage of and bask in the benefits of renewable energy. Here is why we can be your best choice:

• We’re proud to have a 4.7-star rating on TrustPilot and to be a certified Which? Trusted Trader because we pride ourselves on being quality-oriented and ensuring customer satisfaction.
• We only work with local, vetted installers accredited with HIES, TrustMark, and MCS. That way, one may be sure that service is guaranteed to be great, and the installations done according to high industrial standards.
• More than a decade of experience within the solar industry, complemented by over 35,000 satisfied customers, have equipped us to accomplish exceptional installations suited for your needs.
• Our solar panels come with up to 25-year guarantees, and our solar batteries have 15-year guarantees, providing long-term peace of mind.
• Use our online configurator to determine the optimal number of solar panels for your home, estimate your electricity generation, and see just how much you can save.
• Our solar experts can be of service in guiding you through the benefits accruing from 0 VAT and finding the best components to suit your solar PV system.

Contact Soly’s solar experts today to begin your journey into accessing affordable, sustainable energy with an added advantage of Zero rate VAT!