VAT on solar and battery systems set to rise

VAT on solar and battery systems set to rise

It has today been announced that VAT on solar panels and home batteries will increase from 5% to 20% as of October 2019. These changes have come as a huge blow for households hoping to reduce their carbon footprint by installing solar/battery systems.

 The proposed tax reforms have come on the same day that MPs are debating the government’s new net zero carbon target for 2050. This has brought about great criticism, with the Renewable Energy Association stating that the VAT rise “contradicts the government’s commitment to tackling climate change”. Given that only a few weeks ago Parliament declared a climate emergency; this raises the question as to whether the government is taking this pledge seriously. Julian Davenport, CEO at Good Energy has stated that the proposed hike was “possibly the worst way to respond to a climate emergency.”

The government should be seeking to be a world leader in renewable technologies, but it’s damaging our successful solar industry and putting green jobs at risk. We urge the Treasury to listen to the thousands of petitioners who want to play their part in fighting climate change.”

HMRC has blamed EU tax laws for the planned rise. It was ruled by the European Court of Justice in 2015 that energy saving materials should not have been receiving a reduced rate of tax. This subsequently led to an increase in VAT for solar systems on new build homes from 2016 in the UK. However, this did not affect the majority of existing homes that could be retrofitted with solar panels and battery systems. These homes will now be affected by the VAT changes as of October 2019.

Some exemptions will be permitted, however. For example, homeowners over 60 years old, housing associations and those on certain benefits will continue to pay the 5% rate. This futile attempt to make renewable energy accessible for those with a lower income will hardly make up for the lack of government support and the termination of the Feed-in-Tariff.

The government ended the Feed-in Tariff (FiT) scheme on the 31st of March 2019, and was in itself a damaging blow for the solar industry in the UK. This essentially meant that the generation tariff for solar electricity production was discontinued and that there would no longer be a payment made to households for the generation of solar energy for all new applicants after 1st April 2019.

Read our blog ‘Will the grid receive my export for free?’ to learn more about the replacement of the export element of the FiT scheme, which will come into effect in January 2020.

This gap between the end of the FiT in April and the new Smart Energy Guarantee coming into force in January, means that several solar generators have been and will be exporting their electricity to the grid for free until this date. However, some market-leading energy suppliers, such as Octopus and E.ON are offering the Smart Export Guarantee already, well before the government deadline.

The recently proposed VAT changes means that the solar industry will face another challenge when the law comes into effect as of October. The future for the industry is uncertain and we will have to wait and see if the proposed tax changes will reduce the demand for solar panels.

It is a shame that the UK is not currently creating a fostering environment for renewable energy technologies. Installing renewables is a way for households to play their part in the fight against climate change and in reducing their carbon footprint, and this should be encouraged by policy, not hampered.

If you have a question about anything in the above blog, please ask it in the comments section below.