Solar energy storage systems secure reduced VAT rate

STA members discovered that all storage systems were considered for a standard VAT rated at 20%. However, evidence provided by STA to HMRC argued that battery storage systems combined with newly installed solar arrays should receive 5% VAT, due to their role in reducing transmission and distribution losses on the grid.

The evidence called on HMRC to clarify uncertainty surrounding VAT levels for battery storage. Once it was clarified that the systems would be subjected to the 20% rate, the STA argued that systems fitted to solar arrays should receive the same VAT levels as standalone PV systems.

While HMRC has agreed to that decision, it has kept its stance that batteries sold separately would still be charged with the 20% VAT.

The decision offers an economic incentive to homeowners that are exploring energy storage options. Announced just days after Ikea and Solarcentury partnered to launch a new domestic battery storage solution to be paired with solar panels, the ruling has added optimism to the market.

Commenting on the announcement, Solarcentury’s vice chair Seb Berry said: “This is a helpful and welcome decision by the Treasury following a major lobbying effort from the STA. Reduced VAT on new systems will encourage homeowners to embrace storage technologies alongside solar.

“Solar remains a good investment and storage means householders can now take even greater control of their energy bills. All STA members will be delighted by this win.”

Clear as day?

The news is a timely boost for the solar industry, with project deployment at a seven-year low. According to the STA, policy frameworks that provide tax breaks for fossil fuels are yet to be applied to solar.

However, the energy storage market has been buoyed by recent Government announcements. Last month, Business Secretary Greg Clark announced details of the first phase of a four-year £246m investment into battery technology as part of the Government’s drive towards a low-carbon industrial strategy.

Concerns about the power grid’s ability to balance supply and demand as new technologies emerge has also been quelled. A report by the European Academies of Science Advisory Council (EASAC), claims that the emergence of household batteries, along with small-scale solar photovoltaic and plug-in electric cars, is tipped to transform electricity storage.

Matt Mace