VAT on Retrofit Home Energy Storage Scrapped

VAT WILL no longer be applied to retrofitted domestic battery energy storage systems (BESS) from 1 February 2024, the government has announced.

BESS is a common feature of modern solar power installations. By storing power after the sun goes down, they significantly increase the savings from having solar panels. If connected to appropriate systems, they can also help relieve grid stress by automatically engaging in saving sessions, where people are paid to cut their electricity consumption.

Heat pumps, insulation, draught-proofing and other energy-saving equipment for residential use have been exempt from VAT since the 2022 Spring Statement. BESS were also exempt when installed at the same time as a solar energy system. However, retrofitted BESS were not included in the exemption, a rule which has led to more than a million solar homes being unable to benefit from the rebate.

Solar Energy UK and parliamentarians have been campaigning for retrofitted BESS to be included in the VAT exemption since last year. In debate on the Energy Prices Act 2022, Liberal Democrat peer Lord Foster of Bath said: “With more efficient and cheaper batteries now available, it makes sense for those with older systems to add a battery. The solar energy their panels generate can be used far more efficiently to the benefit of the homeowner and the country overall. However, the 20% VAT rate is likely to deter many.”

VAT Scrapped

Now, following a consultation on the expansion of the VAT relief on energy-saving materials, the government has announced that the reform will go ahead. From 1 February, BESS will be exempt from the 20% VAT charge. The exemption will also be extended to water-source heat pumps and diverters, a technology that redirects excess power from solar or other renewables to a specific load or appliance, commonly a water heater.

“Although a long time coming, this is great news for sustainable energy in the UK and I am grateful to everyone on the team who helped make it happen. Installing a battery energy storage system can double the savings offered by a home solar installation, so with energy prices as they are, retrofitting one is a great decision,” said Chris Hewett, Chief Executive of Solar Energy UK.

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