UK government announces tax relief on battery storage systems
Expanding the scope of the relief – electrical battery storage
In a much-needed move towards energy efficiency, the government has unveiled plans to grant VAT relief on the installation of energy storage batteries.
The government will be expanding the relief by bringing the following technologies within scope:
Electrical battery storage
Water-source heat pumps
Diverters retrofitted to ESMs such as solar panels and wind turbines
The relief will also be extended to the installation of all qualifying ESMs in buildings used solely for a relevant charitable purpose and will continue to apply when these ESMs are installed in residential buildings.
A discrete list of groundworks necessary for the installation of certain types of heat pumps will also be brought within scope of the relief, thus allowing all aspects of the installation of ground-source and water-source heat pumps to be relieved of VAT, even those activities that are co-contracted.
The government intends to implement these reforms on 1 February 2024.
Which type of battery storage projects are included?
[Current] Battery storage added alongside solar PV
Projects in which energy storage is fitted concurrently with a solar array. Here, the resident(s) of the home unlocks the full benefits of solar and storage. Namely, they can maximise their renewable investment, optimise energy consumption, and store excess energy. Meanwhile, they’re contributing to a more resilient and sustainable energy infrastructure.
[NEW] Standalone battery storage
Projects in which a battery is fitted without supporting solar. In these scenarios, resident(s) can make use of smart tariffs to charge their battery cheaply overnight. They can then discharge the stored energy in their battery during peak hours. Doing so helps ease pressure on the grid when it’s most under strain, reduce the burning of fossil fuels, and save the billpayer money too!
[NEW] Retrofit batteries
Projects in which a battery is retrofitted to an existing solar array. By adding a storage battery, the billpayer can save the sun’s energy to run on solar morning, noon, and night. They can then make bigger energy bill savings, bigger home carbon reductions, and get better control over their energy usage. All of which helps contribute to a cleaner and more controllable grid.
All of these reforms will apply across the whole of the United Kingdom as a result of the Windsor Framework. These reforms will also be permanent, meaning that, when the zero rate aspect of this relief sunsets on 31 March 2027, the installation of all technologies in scope of this relief will revert to the reduced rate of VAT at 5%.
The government remains committed to its longer-term objective to improve the energy efficiency of the UK’s housing stock, and ultimately, reach net zero greenhouse gas emissions by 2050. While the government recognises the key role that this relief plays in helping to achieve these objectives, it would not be fiscally prudent to take the decision to extend this zero rate beyond 31 March 2027 at this stage. However, the government retains its discretion to extend this zero rate ahead of its 2027 sunset date, at a time when the government will have richer data on the impact of this VAT relief and a clearer sense of the post-2027 fiscal picture.