VAT on Solar Panels for Businesses

Do businesses pay VAT on solar panels?

Yes, as a rule. The standard rate of VAT is 20% (GOV.UK), and it applies to supplying and installing solar panels on business premises. HMRC's relief for energy-saving materials, which lists "photovoltaic (PV) panels with cabling, control panel and AC/DC inverter" among the qualifying materials, only covers installations in residential accommodation and, since 1 February 2024, buildings intended for use solely for a relevant charitable purpose (Notice 708/6, 2.7 and 2.11).

For most businesses that is less of a cost than it sounds: a VAT-registered business can normally reclaim VAT on what it buys for its taxable business, which is why installers usually quote business customers excluding VAT (GOV.UK).

Where the zero rate applies and where it doesn't

HMRC's Notice 708/6 lists what counts as residential accommodation for the relief, and names the buildings that stay standard-rated (Notice 708/6, 2.21). Several are businesses:

HMRC says the zero rate runs from 1 May 2023 to 31 March 2027, and that from 1 April 2027 these installations revert to the reduced rate of 5%. In Northern Ireland the zero rate has applied since 1 May 2023; in Great Britain since 1 April 2022 (Notice 708/6).

So a holiday park with self-catering lodges, a care home or a boarding school's residential block may pay no VAT on solar there, while the same owner pays the standard rate on panels for a restaurant, reception or teaching block. See our pages for hotels and hospitality and schools.

Charities and mixed-use buildings

Since 1 February 2024 the relief covers buildings intended for use solely for a relevant charitable purpose. HMRC defines that as 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". The installer should take reasonable steps to check the use, for example with a letter from you confirming it; no certificate is needed (Notice 708/6, 2.22). More on what counts is in section 14 of HMRC's buildings and construction notice (Notice 708).

"Solely" matters. A charity shop, a café run as a business, or a building hired out commercially is unlikely to meet it. Where a single job covers buildings with different VAT treatment, HMRC says a fair and reasonable apportionment of the charge has to be made (Notice 708/6). Ask the installer to price each building separately.

Reclaiming the VAT

• VAT-registered, fully taxable. The business can normally reclaim the VAT on the panels as input tax, so the VAT is a cash flow cost, not a final cost
• Partly exempt. A business that makes exempt supplies (some financial services, some property letting, some education and health) may only recover part of the VAT
• Not VAT-registered. The VAT is a real cost. Compare prices including VAT
• Mixed business and private use. Only the business share is reclaimable

Your accountant will confirm the position for your business. The VAT treatment is separate from capital allowances, which are claimed on the cost of the system for income or corporation tax, and from business rates.

Batteries

Since 1 February 2024 HMRC has included electrical storage batteries in the relief, whether retrofitted to an existing solar system, installed with one, or standalone and charged from the grid, but only in residential accommodation or a building used solely for a relevant charitable purpose (Notice 708/6, 2.19). A battery for business premises is standard-rated like the panels. Our guide to commercial battery storage covers when one is worth adding.