Government confirms VAT relief expansion for battery storage, water-source heat pumps and diverters

HM Revenue & Customs published its summary of responses to the Call for Evidence on VAT relief for energy-saving materials (ESMs) on 11 December 2023, confirming an expansion of the relief¹. The Call for Evidence ran from 23 March to 31 May 2023 and drew 125 written submissions from individuals, businesses, charities and trade associations¹.

The government stated it will bring electrical battery storage, water-source heat pumps and diverters retrofitted to ESMs such as solar panels and wind turbines within scope of the relief¹. Battery storage will qualify both when retrofitted to a qualifying ESM and when installed as a standalone technology connected to the grid¹. The summary records 63 responses supporting relief for batteries retrofitted to ESMs and 60 for standalone batteries, and 10 respondents proposing water-source heat pumps¹. Thermal storage will not be brought within scope at this time, and wood-fuelled boilers remain in scope¹.

"The government will be expanding the relief by bringing the following technologies within scope: electrical battery storage, water-source heat pumps, diverters retrofitted to ESMs such as solar panels and wind turbines"

The relief will also be reinstated for qualifying charitable buildings, defined as buildings 95% used for non-business purposes, with 42 supportive responses received¹. The government intends to implement the reforms on 1 February 2024¹. The zero rate applies in Great Britain until 31 March 2027, after which installations revert to the reduced rate of 5%; the reforms are permanent in that technologies in scope will then attract 5% rather than the standard rate¹. Following ratification of the Windsor Framework, the relief was extended to Northern Ireland on 1 May 2023, and the reforms apply across the whole United Kingdom¹.

Industry bodies welcomed the decision. Solar Energy UK said VAT will no longer apply to domestic battery energy storage systems from 1 February, and that the extension covers water-source heat pumps and diverters². MCS listed battery storage retrofitted to existing solar PV, water-source heat pumps and groundworks related to ground-source heat pump installation, with VAT removed from 1 February 2024³. Wagner Renewables noted that the standard rate still applies to sale-only purchases of battery storage systems and components, and that zero rating requires installation by a qualified person⁴. myenergi said eco-smart EV charge points remain outside scope⁵. Powervault reported that the measure was not addressed in the Battery Strategy outlined in the Autumn Statement on 26 November⁶.

Why it matters for households

For a household with existing solar panels, the change removes the 20% VAT that previously applied to a retrofitted battery, which Solar Energy UK said had left more than a million solar homes unable to benefit from the rebate². A battery allows a home to store self-generated electricity for evening use rather than exporting it, which bears directly on how much of a property's demand is met from its own generation. The same principle applies to a standalone battery connected to the grid, which can be charged at off-peak times¹. Diverters redirect surplus power from solar or other renewables to a specific load, commonly a water heater². Water-source heat pumps join air-source and ground-source units already in scope¹. The VAT relief on energy-saving materials applies to qualifying installations, and the rate on home battery storage now differs depending on whether a battery is retrofitted, standalone or installed with solar. Households considering a battery without solar can read whether solar panels are needed for VAT-free battery storage, and those weighing a heat pump can check VAT relief on heat pump installations.

What happens next

The reforms take effect on 1 February 2024¹. The zero rate runs until 31 March 2027, when installations revert to 5% VAT¹. MCS noted the reversion is subject to further decisions by the government at the time³. Wagner Renewables said it was awaiting publication of the full details of the amendments to the scheme⁴.

Sources6 cited

1. Summary of responses - GOV.UK, gov.uk
2. Victory for campaign against VAT on home energy storage • Solar Energy UK, solarenergyuk.org
3. Government removes VAT for Heat Pumps and Battery Storage - MCS, mcscertified.com
4. Battery storage to be included in zero VAT scheme - Wagner Renewables, wagner-renewables.com
5. New tax rule could save consumers thousands on home energy tech | myenergi GB, myenergi.com
6. Powervault Celebrates Government Decision to Extend VAT Exemption to Retrofitted Battery Energy Storage Systems • Powervault, powervault.co.uk