A call for evidence on VAT relief for energy saving materials opened in spring 2023, according to Solar Energy UK, which reported that the consultation examined an anomaly affecting retrofitted domestic battery energy storage systems (BESS)1.
Energy saving materials for residential use, including heat pumps, insulation and draught-proofing, have been exempt from VAT since the 2022 Spring Statement1. That exemption also covers domestic BESS bought at the same time as a solar energy system, but not BESS retrofitted to existing installations1. Solar Energy UK said the rule had left more than a million solar homes unable to benefit from the rebate, damaging growth in residential energy storage, keeping bills high and diminishing progress towards net zero1.
The anomaly was raised in debate on the Energy Prices Act 2022, where Liberal Democrat peer Lord Foster of Bath said the 20% VAT rate was likely to deter many homeowners from adding a battery to an older system1.
"Consultation on resolving the anomaly opened in the spring."
Solar Energy UK said it had expected the issue to feature in the Autumn Statement, but there was no mention of it1. The government then announced that the reform would go ahead, with VAT no longer applying to domestic BESS from 1 February1. The extension also covers water-source heat pumps and diverters, which redirect excess power from solar or other renewables to a specific load or appliance, commonly a water heater1.
Chris Hewett, Chief Executive of Solar Energy UK, said installing a battery energy storage system can double the savings offered by a home solar installation1.
Why it matters for households
For a household with existing solar panels, the VAT treatment of a retrofitted battery has been the difference between paying 20% on top of the hardware and installation cost and paying nothing. The VAT relief on energy-saving materials has applied to qualifying measures installed alongside a solar system since the 2022 Spring Statement, but not to a battery added later1. A battery lets a home use its own generated electricity after dark rather than exporting it and buying back from the grid, so the exemption changes the economics of adding storage to an older array. The list of qualifying energy-saving materials now extends to water-source heat pumps and diverters as well as domestic BESS1.
The wider policy context sits under the regulation and policy heading, and the grants and schemes section covers reliefs of this kind. The end date for the VAT relief is a separate question that the announcement did not address1.
What happens next
VAT no longer applies to domestic BESS from 1 February, alongside water-source heat pumps and diverters1. The government has published a summary of responses to the call for evidence1.
Sources1 cited
- Victory for campaign against VAT on home energy storage • Solar Energy UK, solarenergyuk.org