VAT rules could change on solar battery storage

VAT rules could change on solar battery storage

Jun 1, 2023

The government has told MPs that it is consulting on a change to VAT on energy saving materials which could boost the capacity of householders to use solar energy to power their homes

Earlier this month the Environmental Audit Committee (EAC) wrote to the energy security and net zero secretary, Grant Shapps MP, to set out its findings following a short inquiry into the prospects for technological development to deliver more clean energy from solar installations.

The MPs called for VAT to be removed on battery storage, when installed either new or retrospectively in conjunction with rooftop solar systems in order to make better use of household-generated solar energy.

In a written response, the minister has confirmed that the government is exploring options for facilitating low-cost finance from retail lenders to help households and businesses with the upfront costs of installation and drive rooftop deployment. This builds on a commitment previously made in the British Energy Security Strategy.

He added that the current VAT measure means that battery storage supplied as part of installation of a qualifying material will benefit from a VAT zero rate for the next five 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. However, Shapps confirmed that the government is reviewing the current VAT rules to see whether an extension VAT relief could be extended to batteries.

The Committee also outlined its concerns at the current constraints on expanding access to the National Grid, amid fears that present capacity and current arrangements to expand the grid will not allow the UK to reach its full renewable energy potential. Members heard how in some cases it is taking 10-15 years for solar developers to secure a grid connection.

In a letter to the Committee, the energy security secretary outlines work currently underway to address grid concerns, including workstreams incorporating Ofgem, network companies and the Electricity Systems Operator.

The Committee will monitor progress within these workstreams in the course of its current inquiry into enabling sustainable electrification of the UK economy.

While the government is reluctant to incorporate installation of solar PV as a minimum requirement within the Future Homes Standard, the energy security secretary does expect that developers will choose to install solar on rooftops to comply with new energy efficiency standards.

Environmental Audit Committee chairman, Philip Dunne MP, said: ‘It is very welcome that tangible steps are being taken to address grid constraints and proper consideration is being given to ease the financial burden on households who may choose to install rooftop solar.

‘The issue of VAT on batteries being installed after solar panels is an issue that has been raised multiple times within our Committee’s work. I am therefore very pleased that this is being considered in the government’s consultation on VAT on energy saving materials, and the Committee will be making representations to the Chancellor of the Exchequer to highlight the evidence we have taken on this issue.’