0% VAT Extended To All Battery Storage Solutions

A recent announcement from the government means that retrofitted and standalone battery storage installations can now benefit from 0% VAT, starting on the 1st of February 2024.

Previously, battery storage solutions would only qualify for 0% VAT if they were installed alongside a clean energy system, such as solar panels. It follows a concerted push by members of the energy industry for equitable treatment of battery storage, alongside other energy-saving technologies.

What This Means For Homeowners

This change in policy will allow homeowners to install grid connected standalone batteries or retrofit batteries to their existing solar panels without having to pay VAT. This amounts to a substantial 20% saving on the cost of installation and will lead to a quicker return on investment for new battery owners.

Background and Context

The exemption from VAT for energy-saving domestic equipment, including heat pumps and roof-mounted solar panels, was originally announced in the Spring Statement of 2022. However, at that time, battery storage products, such as Tesla Powerwall, were only exempt from VAT when installed in conjunction with other energy-saving equipment, such as solar panels. The limitation of this policy raised concerns among industry stakeholders, who argued that batteries, as a standalone technology, were equally crucial for the promotion of renewable energy and deserved similar fiscal incentives.

Further to this, batteries can also benefit grid stability when paired with off peak tariffs such as Economy 7, as homeowners save more money by charging their battery during off peak hours and discharging it when demand is high, reducing the peak load on the grid.

Advocacy and Government Response

Organisations like the Association for Renewable Energy & Clean Technology (REA) and Solar Energy UK have been at the forefront of this advocacy. Their persistent efforts aimed to rectify what they saw as an unequal tax treatment of battery storage solutions in the initial Battery Strategy.

The government’s response came following a consultation on expanding VAT relief for energy-saving materials, announced in the 2022 Spring Statement. The outcome was a clear acknowledgment by the government of the integral role that electrical battery storage plays in meeting the objectives of VAT relief. The decision to bring electrical battery storage within the scope of this relief, both as a retrofit to qualifying energy-saving materials and as a standalone technology, was a significant win for the renewable energy sector.

Industry Reaction

Dr. Nina Skorupska CBE, Chief Executive of the REA, praised the extension, noting that it aligned battery storage with other energy-saving materials. This change, according to Skorupska, had been a long-standing request from the REA and marked a resolution to a crucial issue of tax inequality.

Chris Hewett, Chief Executive of Solar Energy UK, echoed these sentiments, highlighting the substantial benefits for sustainable energy in the UK. He emphasised that installing battery storage solutions can significantly amplify the savings offered by home solar installations, making it an increasingly attractive option amidst soaring energy prices.

The removal of VAT on retrofitted and standalone battery storage is not just a win for the industry but also for homeowners and the environment. This policy change is expected to encourage more homeowners to consider retrofitting batteries, enhancing the efficiency and sustainability of their existing solar power systems. In the broader context, this move aligns with the UK’s climate goals and its commitment to reducing carbon emissions, as batteries play a critical role in optimising the use of renewable energy sources.