Do You Have To Pay VAT On Solar Panels?

No, UK residents do not have to pay VAT on solar panels for residential properties, at the time of writing. This reduction was introduced to England, Scotland and Wales on April 1 2022, and Northern Ireland on May 1 2023. Then-chancellor Rishi Sunek announced the zero rate during the 2022 Spring Statement.

It was stated that this rate on installations would replace the previous reduced rate (5% VAT) to promote energy efficiency and renewable energy. With the UK no longer being under the constraints of EU law, this new incentive was implemented.

The 0% VAT rate is valid until March 31 2027, whereafter it will revert to the reduced VAT rate of 5% and not the UK’s standard rate of 20%. There are, however, certain limitations to this reduced VAT rate that may cause a person or business to be excluded from it.

We will discuss the varying circumstances and criteria that must be met to qualify for 0% VAT on solar panel installation. Additionally, we will explore how far this rate extends to additional components of a solar installation.

Does The 0% VAT Apply For Solar Installation?

The 0% VAT rate applies to solar PV (photovoltaic) panels, cabling, control panels, AC/DC inverters and installation. It does not apply to other costs such as scaffolding that will be required during the installation process as this is not considered to be an energy-saving material.

Solar panel installation comes with a host of added extras that need to be considered where the cost is involved. You pay for the product, materials for installation, labour costs of fitting the solar panels, and maintenance and repair.

Are There Any Exceptions For The 0% VAT?

Yes, there are some exceptions for the 0% VAT. These include:

• To qualify for the 0% VAT, the solar panels must be new and not secondhand.
• You will be excluded from this rate if you purchase solar panels from one company, and have them installed by another. If you do this, you will pay the standard or reduced VAT rate on your panels, and installation costs.
• Maintenance and repairs after the installations will also be charged at the standard rate or reduced.

Do Commercial Businesses Have To Pay VAT On Solar Panels?

The zero VAT for solar panels only applies to residential properties. For this reason, commercial buildings and businesses are often exempt from this offer. Commercial building owners are also liable to pay the standard 20% VAT on solar panels.

However, as of February 1 2024, the UK Government announced that charities are now eligible for 0% VAT on solar panels.

How Much VAT Do You Pay On Solar Batteries?

The government’s new policy for solar batteries came into effect on February 1 2024. Solar storage systems are now included in the 0% VAT on energy-saving materials, whereas they were previously exempt and had a reduced rating of 5%. This will be in effect until March 31 2027, thereafter reverting to the previous reduced rate.

What Will The Cost Of Solar Panels Be With VAT?

How much difference does the 0% VAT on solar panels make to the overall costs? Take for example a 3-bedroom home using a 3.5 kWp (kilowatt peak) system. The estimated costs would be:

• 5%- 20% VAT: £7,557- £8,431
• 0% VAT: £7,026

This cost is just an estimate. Many other factors must be considered, such as how many panels you need, your energy requirements, roof size and system size. Regardless, the 0% VAT on solar panels will reduce your overall costs.

FAQs

How does the UK’s VAT on solar panels compare to the rest of Europe?

The VAT rate differs between European countries. For instance, Germany, and Austria have a zero rate, while Belgium recently changed their reduced rate (6%) back to 21%. The rest of Europe’s rates are around the 5% VAT mark for energy-saving materials.

Are solar panels tax deductible?

If you have benefitted from the 0% VAT on your solar panels, they will not be tax deductible. This is good news for commercial properties and non-residential buildings. Since the zero rate does not apply to commercial installations, these properties can deduct the full value of solar panels or claim tax relief thanks to the Annual Investment Allowance (AIA).

Are there government grants available for solar panel installation?

There are two grants available to UK residents for installing energy-efficient systems, such as solar panels. They are the Home Upgrade Grant (HUG) and Energy Company Obligation Scheme (ECO4).

Does the zero rate apply to other energy-saving products?

The zero rate also applies to certain energy-saving products including:

• Air source heat pumps
• Ground source heat pumps
• Insulation
• Draught proofing
• Central heating controls
• Hot water system controls
• Wood-fueled boilers.

Additionally, England, Scotland and Wales have 0% VAT on both wind turbines and water turbines.

Conclusion

Taking advantage of the current VAT rate would be highly advantageous. Solar panels have been proven to lower your energy bills as well as your carbon footprint. By installing solar panels while the zero rate is in effect, you have a better chance at achieving your full ROI in a shorter amount of time.

This coupled with other incentives such as the Smart Export Guarantee (SEG), which allows you to sell excess electricity back into the national grid, makes the installation of solar panels an incredibly viable option. If you want to take advantage of the 0% VAT on solar panels, contact Eco Happy today and get a free installation quote.