As part of the Spring Statement 2022, the Chancellor made the welcome announcement that from 1 April 2022 until 31 March 2027 VAT on installing energy-saving materials (ESMs) in residential properties will be 0% in Great Britain. This is a cut from the current rate of 5%, and a change which Solar Energy UK and other trade bodies had called for. The measure is intended to incentivise the take-up of ESMs in line with the government’s net zero objectives.
Summary of changes:
- VAT on a range of domestic energy efficiency and renewable energy installations, including solar, is now 0% in Great Britain. This is a reduction from the previous rate of between 5% and 20%
- Eligible installations are those included on the Government’s list of Energy Saving Measures (ESMs). The list is available at https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086.
- The reduced rate will apply from 1 April 2022 until 31 March 2027, unless the government introduces further legislation to extend its implementation.
What does this mean for solar systems?
Solar thermal and PV systems are included on the list of ESMs. Their supply and installation are now subject to 0% VAT in Great Britain.
In Northern Ireland, the previous rules remain in force. This means that solar is subject to 20% VAT unless a reduced rate of 5% applies. This is dependent upon meeting a number of social conditions, or the ‘60% test’.
The relevant social conditions are listed under paragraph 2.3 at https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086.
The 60% test means that where the cost of the materials supplied as part of an installation (such as solar panels) is more than 60% of the total cost of the installation, the reduced VAT rate only applies to the labour required to install the materials, not the material themselves.
A worked example is available in paragraph 2.4 at the previous link.
Batteries also qualify for 0% VAT in Great Britain if they are supplied as part of an installation with a qualifying material – in other words, a solar system.
However, because batteries are not included on the list of ESMs itself, they do not qualify if installed as a standalone product. Solar Energy UK’s position is that batteries should be included on the list of ESMs, and continues to make the case for this.
What will the impact of this measure be?
For the UK to meet its net zero by 2050 target, it must ensure that 29 million homes are decarbonised to supply clean, affordable energy. This means encouraging the deployment of domestic low carbon technologies and energy efficiency measures to retrofit homes. The change in VAT should contribute to ensuring affordable energy for the UK by incentivising greater deployment of residential solar PV, solar thermal, and other energy efficiency measures.
There is already a strong financial case for residential solar. More information on this is available in the Solar Energy UK report, the Value of Solar Property: https://solarenergyuk.org/resource/the-value-of-solar-property-report/.
What does this mean for residential energy storage?
Solar Energy UK supports measures to help ensure the affordability of solar technologies, and continues to call for batteries to be included on the list of ESMs. As it stands, the rules create a disincentive for consumers to retrofit their homes with storage alone, penalising those who are not able to decarbonise their homes in one go due to financial circumstances.
The tax status of energy storage should not be dependent on the point at which it is installed, and to remedy this, the logical change to make is to add battery storage to the list of Energy Saving Materials, so that it qualifies for zero-rated VAT. Solar Energy UK has called on the government to do so.
This would also reflect calls from energy suppliers, business leaders, consumer advocates, and groups in Parliament, such as the Environmental Audit Committee, which have previously called for VAT to be reduced or eliminated on green products.
Solar Energy UK recommendations to support the uptake of residential solar and energy storage
- All solar and energy storage installations, including maintenance to existing sites, should be subject to 0% VAT. This should include residential energy storage when installed as a standalone measure.
- The Government should launch a major consultation with the low-carbon industry on designing a long-term retrofit support scheme for homeowners and occupiers, to run until at least 2030.
- Building regulations should be designed incentivise onsite solar generation and energy storage, with an underlying Standard Assessment Procedure (SAP) methodology that keeps pace with advancing technology.
 Eg https://committees.parliament.uk/committee/62/environmental-audit-committee/news/139275/eaccalls-for-climate-and-nature-investment-to-beprioritised-in-the-economic-recovery/ and https://green-alliance.org.uk/resources/green_light_for_change.pdf.