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ZERO VAT on Energy Saving Materials

On 23rd March 2022, the Chancellor announced tax cuts in the government’s Spring Statement.

RISHI Sunak has scrapped VAT on home insulation, solar panels, and heat pumps which, he hopes, will result on lower energy bills.

Aided by the request from industry bodies including Solar Energy UK (SEUK) the reduction in the rate of VAT to 0% on domestic renewables and energy efficiency technologies will begin in April.

The 0% VAT covers home insulation, solar panels, and heat pumps and will last for five years.

Sunak said: “I can announce for the next 5 years, homeowners having materials like solar panels and heat pumps installed will no longer pay 5% VAT – they will pay 0%. ” …at the moment only, some items qualify for 5% VAT relief… …and there are complex rules about who is eligible.

Zero VAT on Solar

“The relief used to be more generous but from 2019 the European Courts of Justice required us to restrict its eligibility.

“But, thanks to Brexit, we’re no longer constrained by EU law. So today, I can announce for the next five years, homeowners having materials like solar panels, heat pumps, or insulation installed will no longer pay 5% VAT– they will pay zero.

“A family having a solar panel installed will see tax savings of over £1,000 and savings on their energy bill of over £300 per year.”

The measure will incentivise the take-up of ESMs in line with the government’s net zero objectives.

UPDATE: Solar Energy UK is thrilled with the Government’s decision to cut VAT on installing energy-saving materials in residential properties from 5% to 0% from 1 April 2022 until 31 March 2027. We are also very pleased to confirm that the zero rate VAT applies to domestic energy storage when installed with solar, although retrofit or standalone batteries would still be subject to 20% VAT.

This is another step forward in an already great year for residential solar, which could truly unlock the UK’s solar potential. Reducing the VAT rate on energy-saving materials and installation will help families cut their energy costs permanently and afford improvements towards decarbonising their homes.

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