VAT is no longer charged on domestic battery energy storage systems (BESS) "under any circumstance", Solar Energy UK reported on 1 February 2024, the day the change took effect1. The measure had been announced in December 2023 and followed what the industry body described as a lengthy campaign by itself and parliamentarians1.
The Value Added Tax (Installation of Energy-Saving Materials) Order 2024 applies a temporary zero rating to the installation of BESS in homes and in buildings used solely for charitable purposes1. According to Solar Energy UK, the change resolves an anomaly under which fitting a battery at the same time as a new solar energy system was VAT-free, but retrofitting one to an existing installation was not1. That left more than 1.2 million solar-powered homes unable to benefit from the tax cut1.
The same exemption extends to water-source heat pumps and to smart diverters, which transfer solar power into hot water tanks when generation exceeds consumption1. The zero-rating period ends on 31 March 2027 across the UK1.
"The cut in VAT is exceedingly welcome, and we have every expectation that it will increase demand for home battery energy storage. Allowing solar power to be used after dark, can double the savings offered by home solar power systems. There has never been a better time to upgrade than today."
The rate that applied before the change, and the rate that will apply after 31 March 2027, have not been reported in the source material.
Why it matters for households
A battery lets a home store electricity generated during the day and use it in the evening, when a solar array is not producing. Before this change, the tax treatment of a battery depended on whether it was installed alongside new solar panels or added later to an existing system, which affected the cost of the home battery storage itself and of the installation work around it1.
Removing VAT from retrofitted batteries changes the arithmetic for the roughly 1.2 million households that already have solar but no storage, a group Solar Energy UK says could not previously claim the relief1. For a home weighing up whether to add storage, the practical effect is a lower upfront cost, though the size of that effect depends on the price of the system and the installer's charges, neither of which is set out in the source material.
The exemption also covers smart diverters, devices that send surplus solar generation to a hot water cylinder rather than exporting it. Households considering storage without solar panels are covered by the same zero rating, as the anomaly that was removed concerned the timing of installation rather than the presence of a solar array1.
What happens next
The zero rating runs until 31 March 2027 across the UK1. What replaces it after that date has not been reported.
Sources1 cited
- VAT on home battery systems cut to zero, solarenergyuk.org