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VAT on solar panels: the expert guide
Learn about the UK's temporary VAT reduction on solar panels, how long it lasts for, and any exceptions.
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What's in this guide?At a glance
💷 New domestic solar installations can benefit from 0% VAT
Installations of solar panels and batteries on residential properties in England, Northern Ireland, Scotland, and Wales are exempt from VAT, meaning there’s no VAT included in the purchase and installation costs.
Previously, the VAT rate for solar installations was either 5% or 20%, depending on a couple of factors.
That means the VAT rate cut could save you hundreds or even thousands of pounds.
🚫 There are some exceptions to this rate
To qualify, the materials must be new (i.e. not second-hand), the installation must be on a building used for a relevant residential purpose, and your installer must be certified by Flexi-Orb or MCS.
And if you buy solar panels from one provider and have them installed by someone else, you'll be hit with a standard 5% or 20% VAT rate when buying them.
It's also worth remembering that any maintenance or repairs after installation will be at the standard VAT rate.
🔒 The VAT rate will stay at 0% until March 2027
The 0% VAT on solar panels in the UK is set to last until 31 March 2027.
From 1 April 2027 onwards, the plan is for the VAT rate on solar panel supplies to go up to 5%, in line with the UK government's financial and renewable energy goals.
This will, depending on the value of panels at the time, add hundreds of pounds onto their price tag.
🔋 The 0% VAT rate also applies to standalone batteries
If you're buying a standalone solar battery, you'll also benefit from the 0% VAT rate.
In February 2024, the government added storage batteries to the list of green products that enjoy a 0% VAT rate – and it makes no difference whether you get solar panels too or not.
This could save you hundreds of pounds, though you'll still spend thousands in upfront costs.
🌞 There's no VAT on solar exports – for most people
Domestic solar export revenues are usually not taxable.
If your solar panel system generates more than 120% of your annual electricity consumption, it becomes taxable. However, you’ll still have a £1,000 trading allowance, meaning you can make solar export revenues up to this point without paying any tax.
And even if you make more than £1,000 from selling electricity to the grid, you can still claim a £1,000 deduction.
If you’ve been thinking of switching to solar, the 0% VAT rate in the UK may have caught your attention.
In this article, we'll explore the current VAT situation in the UK solar industry at the moment, how long the 0% rate will last for, any exemptions, and the impact this can have on the overall cost of going solar.
To discover how much a solar & battery system could save you, answer a few quick questions below and we'll generate an estimate.
Do you have to pay VAT on solar panels in the UK?
According to the UK government's list of Energy Saving Measures (ESMs), most solar photovoltaic (PV) panels installed on residential properties in Scotland, England and Wales (plus Northern Ireland, as of 1 May 2023) are exempt from VAT, meaning there’s no VAT included in the purchase and installation costs.
There are a few exceptions, however, which we’ll cover below.
What’s the criteria for 0% VAT on solar panels?
The list of criteria for 0% VAT on solar panels in the UK, as outlined on the government's list of ESMs, focuses on installations in residential buildings. These measures include solar panels, wind turbines, and water turbines.
To qualify, the materials must be new (i.e. not second-hand), and the installation must be on a building used for a relevant residential purpose - this means that commercial installations rarely qualify for the 0% VAT rate.
Finally, you'll also need an installer who's been certified by either Flexi-Orb or MCS to carry out the installation.
Are there any exceptions?
If you buy solar panels from one provider and have them installed by someone else, you'll be hit with a standard 20% VAT rate when buying them. Plus, any maintenance or repairs after installation will be at the standard VAT rate.
🤔 Thinking of going solar? Here's why a larger system makes sense ⬇️
When you’re switching to solar, it's worth getting as large a solar & battery system as you can.
A few extra solar panels won't add much to the overall cost, but in most cases they'll have a big impact on your energy bill savings.
And for the majority of homes, a larger battery will significantly increase the value you get from your solar panels.
To understand all the key reasons in detail, check out the articles below.
What was the VAT rate on solar before the reduction?
Before introducing 0% VAT for solar panels in the UK, the VAT rate was variable - typically either 5% or 20% - depending on specific criteria.
The reduced rate of 5% VAT applied under certain conditions, like domestic installations for individuals over 60 or for those receiving certain benefits. Everyone else had to pay the standard 20% VAT rate.
In Northern Ireland, the amount you'd have to pay depended on how your installation costs were split between products and labour.
How much will 0% VAT save me on solar panels?
Since there's no VAT on solar panels in the UK, it's more affordable for homeowners to get solar PV systems installed.
For example, a 3.5 kilowatt peak (kWp) solar and battery system for a typical three-bedroom home currently costs around £9,000, and that already includes the benefit of the 0% VAT rate.
Under the old 20% VAT rate, this same system would have cost roughly £10,800, but with the zero-rate VAT, you keep about £1,800 in your pocket.
How long does 0% VAT on solar last for?
The 0% VAT on solar panels in the UK is a temporary measure, set to last until 31 March 2027.
From 1 April 2027 onwards, the VAT rate on solar panel supplies will go back to the reduced rate of 5%, in line with the UK government's financial and renewable energy goals.
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Does 0% VAT apply to solar batteries?
Whether you're buying a standalone solar battery or getting a battery installed with a solar panel system, you'll benefit from the 0% VAT rate.
This rule changed in February 2024 to include standalone storage batteries at the 0% VAT, regardless of whether you’re getting solar panels at the same time.
Is there VAT on solar panel income?
The way solar panel income is taxed in the UK varies based on installation and usage. If you have a domestic installation and are signed up to an export tariff (e.g. like the Smart Export Guarantee), you'll get paid for the surplus electricity you send back to the grid. Normally, you won't get charged VAT or income tax on this payment if you produce electricity primarily for your own home.
However, for businesses and commercial properties, the money made from solar panels, including feed-in tariffs, might be subject to taxes.
Summary
Understanding VAT on solar panels is crucial for anyone considering investing in solar panels for their home. The tax rules can be complex and may vary depending on your usage and initial panel setup.
Ultimately, the potential long-term savings and positive environmental impact can make solar panels a wise choice for individuals and businesses alike. But it’s always a good idea to do your research and talk to a professional before making any decisions.
To learn how much a solar & battery system could save you, answer a few questions below and we'll provide an estimate.
VAT on solar panels: FAQs
Is there VAT on buying solar panels?
In the UK, you don't have to pay VAT when you buy and install brand-new solar panels for your home using one supplier. This is the government's way of encouraging homeowners to generate and use renewable electricity by making solar panels more affordable.
But there are some exceptions for commercial properties, using multiple suppliers for your installation, or buying standalone products like solar batteries. If you want to take advantage of the 0% VAT initiative, it's best to install a new system with all the components at once.
Is there tax relief on solar panels?
In the UK, you can benefit from tax relief on solar panels through the government’s 0% VAT policy. This relief applies to the purchase and installation of solar panels on residential properties, as long as you use the same supplier for both parts of the process.
However, certain conditions and exceptions apply, and commercial installations aren’t eligible for the same level of tax relief.
Can you claim back VAT on solar panels?
VAT refunds are mainly for specific businesses and situations, such as building new homes or converting non-residential buildings into homes. For your average home solar panel setup, the price you pay is the end price.
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Based in London, Melody is a specialist green technology writer who has been covering sustainability, climate action and ESG for the past five years, after gathering operational experience in green investing and financial services. She has written for various industry publications, including renewable technology advisor The Eco Experts, and she holds a Master’s degree in law from Birkbeck University.