Do You Pay VAT On Solar Panels? – Everything You Need To know

Installing solar panels isn’t necessarily cheap but with grants available, and now 0% VAT payable on professional installations, solar becomes a much more affordable option. When you add in the savings that you can make on energy bills over the lengthy lifetime of solar panels, going solar becomes a very real option for many people and businesses.

So what difference does the VAT reduction to 0% mean for those looking to have energy saving measures like solar installed? With energy bills at alarmingly high levels, and this having a crippling effect on some households and businesses, a 0% VAT payable level can help those looking to reduce bills and carbon emissions, through renewable heating systems like solar, a much more affordable option.

When did the 0% VAT rate for energy saving measures come into effect?

The 0% VAT on measures such as solar panels has been applicable since 1 April 2022. It runs for five years until 31 March 2027 at which point the 5% rate of VAT that was applicable previously will apply once more.

So what does 0% VAT mean?

Installers can install certain energy efficiency products in homes and businesses and charge 0% VAT to customers. This means for those looking to install solar panels, there will be no VAT to pay until the end of March 2027.

The 0% VAT level also applies to other energy efficiency measures, so it is possible that a household could benefit from paying no VAT for other technologies such as heat pumps or insulation.

Why has the VAT cut been introduced?

The switch to zero level VAT is part of the government drive to encourage the installation of green technologies, not only in an attempt to reduce carbon emissions, but also to bring long-term energy bills savings.

The 0% rate is applicable only in England, Scotland and Wales, with different rules and rates applicable to Northern Ireland.

Can I buy solar panels and install them myself and still qualify for 0% VAT?

You cannot buy or install solar panels yourself if you are wanting to benefit from the 0% VAT incentive. A professional solar installer will need to carry out your solar installation and be responsible for charging you the correct rate of VAT.

Why has the 0% VAT measure been introduced?

The 0% VAT in energy saving measures was introduced in 2022 by the UK government to encourage more households and businesses to adopt energy efficient improvements that will reduce their carbon emissions and have a noticeable impact on energy bills.

At a time when energy bills are at exceptionally high levels, this temporary reduction in VAT from 5% to 0% on renewable energy installations is intended to allow more to make the move to renewable energy sources by making it more affordable.This is part of the drive by the government for the UK to meet its net zero target for carbon emissions by 2050. 

Does the 0% apply to other renewable technologies as well as solar?

Yes, solar PV systems are  just one of several renewable technologies that have become increasingly affordable due to the reduced costs associated with the 0% VAT measures. Air source heat pumps, biomass boilers, and insulation are some of the energy saving measures where zero VAT is applicable.

For example, under the Boiler Upgrade Scheme, you could be eligible for a grant of up to £6,000 for a heat pump, and also benefit from 0% VAT.

How much could I save when installing solar? 

There are two aspects to this, the tax savings you would make, and then the annual saving on your bills you would make due to operating a solar PV system. When the VAT savings were announced by the then Chancellor, Rishi Sunak, in his Spring Statement in April 2022, he suggested that the tax savings for a typical family having solar would amount to around £1,000.

The bill savings from solar depends on many factors including how much time you spend at home during the day (and are therefore able to use the electricity generated by your solar PV system) and also whether you also benefits from Smart Export Guarantee (SEG) payments for selling back any excess electricity produced back to the grid.

The Energy Saving Trust estimated that a household that is home all day and benefits from SEG could save as much as £610 annually. A household that is out all day would potentially save around £400 on bills annually when combined with SEG.

Can I get grants for solar?

While costs of solar panels can be high, the good news is there are government-funded solar grants available to help you transform how you power and heat your home. Under the Energy Company Obligation Scheme (ECO), now in its 4th phase ECO4, and ECO+, some UK households could be eligible for partially or fully funded solar panel installation.

ECO4 aims to help lower-income households and those on certain government benefits, while the ECO+ is aimed at homeowners who live in vulnerable households but do not currently receive benefits. Even if you are not eligible for free funding, we can help you find good offers, including finance options that could help you transform your home

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Oliver Creevy

Ollie has been writing about home improvements for around 3 years, with the majority of that time being focused on Government funding to improve UK household's energy efficiency. Ollie started writing about Government grants back when ECO3 was delivering free boilers. Now the focus of ECO4, SEG, LA Flex & other schemes is on renewable energy sources such as solar panel systems. Ollie is best placed to advise UK households on what grants they could qualify for and how they can reduce their energy bills through Government funding. Ollie and Solar Panel Grants have been featured in The Evening Standard, The Big Issue, Bustle & more.

£10,000 in Free Grants to Install Solar in Your Home