Following the failure of the Green Homes Grant scheme, the UK Chancellor is hoping to spearhead a new era of energy efficiency improvements in homes across the UK. It hopes to do that by removing VAT from all energy efficiency improvements, which includes the installation of solar panels and batteries.
Currently the UK Government charges 5% VAT on many energy efficiency improvements as long as the cost of materials does not exceed 60% of the total installation cost. That means most households are currently paying just 5% VAT to install a standard solar array.
However, for those whose projects lead to the cost of materials exceeding 60% of the total installation cost, they would have to pay the standard rate of VAT of 20% for those materials, while only paying 5% for the cost of installation. Those people are likely to see this new measure have a greater impact, as the 60% test has been removed, meaning there is no limit to how much the products cost versus the installation.
In the House of Commons on Wednesday, Rishi Sunak noted that energy efficiency improvements were a great way to reduce household bills during the current energy crisis. That’s why he wanted to reduce the price of these improvements, although not through a scheme like the Green Homes Grant, but by giving these products a direct tax cut.
Now, anyone installing a solar panel, battery energy storage, heat pump or insulation will pay no VAT whatsoever. It’s expected that the average household could save around £1,000 under the new measure – although given the current 5% VAT rate, the savings could be much less. However, it’s important to note energy storage can only be installed another measure, as it has not an energy-saving material by itself.
In a statement, HMRC noted, “The VAT measure announced means that battery storage supplied as part of installation of a qualifying material will benefit from a VAT zero rate for the next 5 years. Battery storage has not been added to the list of qualifying materials itself and therefore will continue to be standard rated when installed as a standalone product.”
Sunak praised Brexit for the fact that he was able to reduce the VAT on energy efficiency improvements and blamed the European Union for the reason the policy could not be extended to Northern Ireland. He noted that ‘deficiencies’ in the Northern Ireland Protocol prevented the zero-rate VAT on energy efficiency improvements in Northern Ireland and that he would raise the issue with the European Commission.
The solar industry has been calling for the removal of VAT on energy efficiency improvements as a great way to reduce the cost of installing these products that will help the UK achieve its net zero ambitions.
Sanjay Neogi, Head of UK and Europe at Enzen Group, noted, “Looking at the mid-term, 0% VAT making energy saving devices such as roof-top solar more affordable provides us with more good news. The next step here is for a comprehensive energy strategy that tackles the long-term challenges, factoring in the much-needed infrastructure overhaul that consistently prioritises electric vehicle charging and renewable energy integration over fossil fuels.
“In the face of soaring energy bills, rising planet temperatures and accelerating geo-political conflicts, there has never been a more pressing time for an energy strategy. And its postponement has left many unanswered questions around the UK’s plans to safeguard power supply. The crisis in Ukraine has, among other tragic impacts, bought this all sharply into focus; and today’s spring statement could have been the perfect platform to shine a spotlight on how the energy crisis can be mitigated.
“The good news is we can overcome the current challenges by harnessing sustainable solutions. And the answer is rooted in resilience. The UK must become self-reliant when it comes to power, which includes the decentralisation and diversification of renewables, a robust cyber security system, and a more urgent focus on the infrastructure required to accommodate electric vehicles and renewable sources onto our grid.”