VAT on Solar Panels to Rise Sharply in October

A new VAT regime risks making solar panel installations uneconomic for homeowners and harming Britain’s green industries, even as the UK commits to an ambitious zero carbon target for 2050.

The Treasury put forward legislation Monday to raise the tax rate on solar-battery systems from 5% to 20% from October, over objections from the industry and environmental groups.

Critics have warned the tax increase will depress solar panel installation numbers, which have already fallen following the rescinding of government subsidies and the closing of the feed-in tariff scheme in April. It threatens environmentally-conscious homeowners, the UK’s green energy industry, and Britain’s decarbonisation targets, they’ve cautioned.

Dr Nina Skorupska, chief executive of the Renewable Energy Association (REA), said: “The VAT proposals will create a barrier to British homes and businesses who are seeking to take action on climate change and reduce their bills by installing solar with battery storage.”

The government “should be doing all it can to install these technologies rather than enacting barriers,” she said.

The association’s head of policy, Frank Gordon concurred: “The proposed VAT rate hike hits the small-scale renewable energy industry hard during an already difficult landscape. This change risks setting back the UK decarbonisation of homes and businesses in the UK by a number of years.”

Dr Skorupska said the VAT hike “contradicts the government’s commitment to tackling climate change” just weeks after parliament declared a climate emergency.

Coal and gas sold for domestic use will continue to be taxed at the reduced rate.

HMRC has blamed EU tax laws for the tax hike. The change will bring Britain in line with an EU court of justice ruling from 2015, which found that energy saving materials cannot be charged the discounted VAT rate.

HMRC says it is offering the most tax relief possible for home renewable systems under EU law.

It pointed out that the new rates will apply just to the hardware costs of these installations. Labour will still be charged at the reduced VAT rate of 5%. And housing associations, homeowners over 60 and those receiving certain benefits will continue to be charged the discounted rate.

However, the REA has called on HMRC to cancel the proposed tax increase altogether. It’s due to come into effect in October, the same month the UK is scheduled to leave the EU, so should be scrapped as soon as possible after Brexit, the association urged.

The REA cited a record 84% public support for renewable energy.

Meanwhile, 11,000 members of the public have signed a petition by the green energy supplier Good Energy calling for the government to ditch the tax increase.

“The government should be seeking to be a world leader in renewable technologies, but it’s damaging our successful solar industry and putting green jobs at risk. We urge the Treasury to listen to the thousands of petitioners who want to play their part in fighting climate change,” Julie Davenport, chief executive of Good Energy, said.