Zero VAT on Solar Panels in the UK: What Qualifies

Key Takeaways

• The installation of specified energy-saving materials, including solar panels, is currently subject to a 0% VAT rate.
• This temporary zero rate applies from 1 May 2023 to 31 March 2027.
• The installation must be in residential accommodation or buildings used solely for a relevant charitable purpose.
• The 0% VAT applies to the installation service and the materials supplied by the installer, not to materials purchased separately.

Do I pay VAT on solar panels in Great Britain?

In Great Britain, the installation of solar panels and certain associated equipment currently qualifies for a 0% VAT rate. This temporary relief is in effect from 1 May 2023 until 31 March 2027. After this period, the VAT rate is scheduled to revert to 5%.

This zero rate applies specifically to the installation services and the energy-saving materials supplied by the installer, provided the installation occurs in residential accommodation or a building intended solely for a relevant charitable purpose. It does not apply if you purchase the materials without installation.

How the 0% VAT Rate Works for Solar Installations

The VAT relief for energy-saving materials is outlined in HM Revenue & Customs' (HMRC) VAT Notice 708/6. This notice explains when the installation of energy-saving materials is zero-rated or reduced-rated. The current 0% rate is a temporary measure.

The relief applies to two main components of a solar installation:

1. The services of installing energy-saving materials in qualifying buildings.
2. The supply of energy-saving materials by the person who installs them in qualifying buildings.

This means that if you contract an installer to supply and fit solar panels, the entire invoice for that work should reflect the 0% VAT rate, provided all conditions are met. However, if you purchase solar panels from a retailer and then arrange for a separate installer, the purchase of the materials from the retailer will be standard-rated (20% VAT).

What Counts as a Qualifying Energy-Saving Material?

The VAT relief applies to specific energy-saving materials. For solar installations, these include:

• Solar panels: This covers all systems installed in, or on the site of, a building. This includes "solar collectors such as evacuated tube or flat plate systems, together with associated pipework and equipment, such as circulation systems, pump, storage cylinder, control panel and heat exchanger". It also includes "photovoltaic (PV) panels with cabling, control panel and AC/DC inverter".
• Electrical storage batteries: From 1 February 2024, "electrical storage batteries installed in residential accommodation or buildings intended for use solely for a relevant charitable purpose qualifies for the temporary zero rate". This includes batteries retrofitted to existing microgeneration systems (like solar panels), standalone batteries for grid electricity, or batteries that store electricity from both microgeneration and the grid. Batteries installed as part of a new microgeneration system are typically considered "ancillary and form part of a single zero-rated supply".
• Smart diverters: Also from 1 February 2024, "the retrofitting of a smart diverter to one or more of the microgeneration systems (listed in section 2.7) installed in residential accommodation or buildings intended for use solely for a relevant charitable purpose qualifies for the temporary zero rate". A smart diverter automatically directs electricity generated by microgeneration systems to appliances. If fitted as part of a microgeneration system installation, it usually forms "part of a single zero-rated supply".

Conditions for 0% VAT: Where and to Whom

For the 0% VAT rate to apply, specific conditions regarding the location and purpose of the installation must be met.

Installation

"Installation, in this context, means putting in place energy-saving materials." This involves "some process by which materials are permanently fixed in place". For solar panels, this means they must be physically attached to the property.

Qualifying Buildings

The relief applies to installations in two main categories of buildings:

1. Residential Accommodation: This is broadly defined and includes:

• • Houses, blocks of flats, or other dwellings.
  • Armed forces residential accommodation.
  • Children’s homes, care homes for the elderly or disabled.
  • Hospices.
  • Institutions where at least 90% of residents reside as their sole or main residence.
  • Monasteries, nunneries, and similar religious communities.
  • Residential accommodation for students or pupils.
  • Self-catering holiday accommodation.
  • Caravans used as a permanent habitation (e.g., park homes).
  • Houseboats designed or adapted for permanent habitation, or other boats used as a sole or main residence where Council Tax is paid.

2. Buildings for Relevant Charitable Purposes: "From 1 February 2024, the relief has been extended to include buildings intended for use solely for a relevant charitable purpose." This means use by a charity "otherwise than in the course or furtherance of a business" or "as a village hall or similarly in providing social or recreational facilities for a local community". Installers are expected to "take reasonable steps to ensure that your customer will use the building for a relevant charitable purpose and retain the appropriate documentation."

Installations in places like "hospitals, prisons or similar institutions, hotels or inns or similar establishments" are subject to the standard VAT rate, as these are not considered residential accommodation for the purpose of this relief.

When Other Work is Involved: Single vs. Mixed Supplies

When solar panel installation is part of a larger project, the VAT treatment depends on whether it's considered a "single supply" or "mixed supplies."

Single Supply

A "single supply is where one element of the supply is the principal element to which all other elements are ancillary." An ancillary element is not an aim in itself but "a better means of enjoying the principal supply." Indicators of a single supply include:

• A single price.
• The supply is advertised as a package.
• Components are not available separately.
• All components are installed at the same time.

For example, if you install a central heating system with an air, ground, or water source heat pump, this "would be a single zero-rated supply because the principal elements are zero-rated."

Mixed Supplies

"There are mixed (or multiple) supplies where one or more element is distinct and independent." Indicators of more than one supply include:

• Separate pricing or invoicing.
• Items available separately.
• A time difference between parts of the supply.
• Elements of the supply are not interdependent or connected.

For instance, if you have a contract to build an extension, and "sometime after the work has commenced, the homeowner separately asks you to install thermostatic valves, this is a supply that qualifies for relief." This means the solar installation could be zero-rated even if other work on the property is standard-rated, provided it's a distinct and separate supply.

If energy-saving materials are installed "during the course of construction of a new dwelling, your supply is zero-rated — the construction of the building and the installation of the energy-saving materials."

What You Cannot Get 0% VAT On

Several scenarios and products are specifically excluded from the 0% VAT rate for energy-saving materials:

• Supply of materials without installation: If you "supply energy-saving materials without installing them your supply will be standard-rated." For example, "the sale of energy-saving materials by a retailer is always standard-rated."
• Installations in certain institutions: The "standard rate applies to the installation of energy-saving materials in hospitals, prisons or similar institutions, hotels or inns or similar establishments."
• Insulation as part of an extension: If "an extension to a house and the walls and roof space were insulated as part of the construction, this would be one single standard-rated supply." This is because "the construction of the extension is the principal element of the supply, which is standard-rated."
• Other energy-efficient products: The installation of "all other energy-efficient products, such as energy-efficient boilers (unless grant-funded), secondary or double glazing, low-emissivity glass, or energy-efficient fridge freezers, are standard-rated."

Important Dates and Future Changes

The 0% VAT rate for the installation of specified energy-saving materials is a temporary measure.

• It came into effect on 1 May 2023.
• It is scheduled to end on 31 March 2027.
• "From 1 April 2027 onwards these will revert to the reduced rate of VAT of 5%."

It is important to note that the VAT treatment of grant-funded installations of heating equipment, which currently applies a reduced rate of 5%, remains unchanged. For information on other financial support, you can explore guides on ECO4 and other energy grants for solar.

What the published sources do not tell you

HMRC's VAT Notice 708/6 provides comprehensive guidance, but it does not cover every specific scenario. For instance, the notice does not offer detailed guidance on how to handle properties that are partially residential and partially commercial, such as a shop with a flat above. It also lacks specific examples or criteria for apportioning VAT in such complex mixed-use cases.

The notice primarily focuses on the initial "installation" of energy-saving materials and does not provide specific guidance on the VAT treatment of ongoing maintenance or repair services for solar PV systems after they have been installed, unless these services fall under grant-funded schemes. Additionally, while the term "curtilage" is used in relation to ground and water source heat pump installations, it is not explicitly defined within this notice. Finally, the notice does not detail what specific "reasonable steps" an installer should take to verify that a building is used for a relevant charitable purpose.

This information is for general guidance only and does not constitute tax advice. The VAT treatment of a specific quote is a matter for the supplier and HMRC.