VAT on Commercial Solar PV: the 20% Rate and How Businesses Reclaim It
Updated 10 November 2026 · SEO Dons Editorial
What VAT rate applies to solar panels on a business building?
The standard rate, which gov.uk gives as 20%. The 0% rate people quote comes from HMRC's VAT Notice 708/6, and it is narrow: "The relief applies to the services of installing energy-saving materials in residential accommodation and charitable buildings." Anything outside those two categories is charged at the standard rate. The notice also says that "if you supply energy-saving materials without installing them your supply will be standard-rated", so buying panels separately does not unlock the relief.
For residential work the notice counts the cabling, control panel and inverter as part of the solar panel system, defining solar panels to include PV "panels with cabling, control panel and AC/DC inverter". On a commercial building the whole package is standard-rated. What a system costs before VAT is on the cost page.
Where does the 0% rate stop?
| Installation in | Rate under Notice 708/6 |
|---|---|
| Residential accommodation, including homes for students or pupils and self-catering holiday accommodation | 0% for installations from 1 May 2023 to 31 March 2027; 5% from 1 April 2027 |
| A building used solely for a relevant charitable purpose | Same dates; extended to these buildings from 1 February 2024 |
| Hospitals, prisons or similar institutions; hotels, inns or similar establishments | Standard rate |
| Offices, shops, warehouses, factories and other premises outside the two relief categories | Standard rate |
| Materials supplied without installation | Standard rate |
The 31 March 2027 date matters to residential and charitable work only. Commercial installations are not affected either way. Batteries follow the same split: the zero rate for storage batteries applies in residential accommodation and qualifying charitable buildings, so a battery added to a commercial system is outside it.
How does a VAT-registered business get the VAT back?
The VAT on the installer's invoice is the business's input tax, which HMRC defines as VAT charged on business purchases and expenses. A registered business can reclaim as much of it as relates to its taxable supplies. The mechanics, from VAT Notice 700:
- You deduct input tax from output tax on the VAT return, and if input tax is greater, you reclaim the difference from HMRC.
- You normally claim on the return for the period in which the supplier's tax point occurred, and you must hold valid evidence of a taxable supply.
- The time limit is 4 years from the due date of the return on which you were first entitled to claim.
The cash leaves with the invoice and returns through the return, so a project budget should allow for the gap. A business that registers after buying has a route too: Notice 700 lets it treat earlier VAT as input tax if goods were supplied not more than 4 years, or services not more than 6 months, before registration, among other conditions.
When can a business not reclaim all of it?
Notice 700 says that "in principle" you cannot reclaim VAT that relates to a non-business activity or to exempt supplies. Three situations follow from that:
- Non-business use. HMRC says that if you also carry out non-business activities, it could affect the amount of VAT you can treat as input tax.
- Partial exemption. A business making exempt as well as taxable supplies is "partly exempt" and probably cannot claim all its input tax. HMRC's Notice 706 sets out the methods and the de minimis test.
- Capital Goods Scheme. If a capital item is used for exempt supplies or non-business purposes, the VAT on its cost "may be subject to adjustments" under that scheme.
Property lettings are one place partial exemption arises. gov.uk lists property transactions among exempt supplies, and Notice 700 says a business can opt to tax some property supplies that would otherwise be exempt. Whether that applies to a roof lease is a question for an accountant or HMRC.
What about mixed-use buildings and charities?
These are signposts, not advice.
- Mixed use. Notice 708/6 tells installers to decide whether works are a single supply, "subject to just one VAT rate", or multiple supplies that "may potentially be subject to different rates". Pricing, invoicing and whether items are available separately all feed into that test, so ask the installer how the invoice is split before signing.
- Charities. The relief covers use "otherwise than in the course or furtherance of a business" or as a village hall or similar. The installer "should take reasonable steps" to confirm that use and keep documentation, such as a letter confirming intended use. A charity building used for trading is a question for HMRC.
Other tax questions have their own pages: business rates on rooftop solar and grants and tax relief. Capital allowances are a separate question from VAT, and the capital allowances guide for solar panels explains which allowances an array qualifies for and what to ask an accountant.
What should an installer's quote and invoice show?
GOV.UK tells VAT-registered sellers that invoices "must include your VAT number and display the VAT separately". A buyer needs that to support its claim, so check that the price, the VAT rate and the VAT amount appear separately and that the installer's VAT number is there. A quote offering 0% on an office, warehouse or factory roof deserves a question. Notice 708/6 gives the zero rate for residential accommodation and charitable buildings, so ask which provision the installer relies on and keep the reply with the invoice.
What about VAT when electricity is bought under a PPA, or exported?
Under a power purchase agreement the invoices are for electricity, not equipment, so HMRC's Notice 701/19 on fuel and power applies. It says supplies of fuel and power are standard-rated unless they qualify for the reduced rate. Qualifying use includes domestic use, charity non-business use, and small quantities of up to 33 kilowatt hours a day or 1,000 kilowatt hours a month. Electricity for any other use is standard-rated, so a business PPA charge normally carries 20%, which a registered business treats as input tax. HMRC updated the notice on 8 September 2026 for a temporary zero rate covering domestic and other qualifying use from 1 October 2026 to 31 March 2027; it is framed around those uses, not ordinary business use.
Export is the other direction. E.ON Next's SEG page tells a VAT-registered business that "VAT will be added to your export payment" and asks for a self-billing form, while elsewhere the same page says SEG payments are "not subject to VAT". Licensee wording differs, so confirm with the licensee and HMRC. See also the Smart Export Guarantee guide.
Sources and last checked
- HM Revenue and Customs: Energy-saving materials and heating equipment (VAT Notice 708/6), updated 31 January 2024; VAT guide (VAT Notice 700), updated 25 June 2026; Partial exemption (VAT Notice 706); Fuel and power (VAT Notice 701/19), updated 8 September 2026, checked 22 October 2026.
- GOV.UK: VAT rates; Charge, reclaim and record VAT, checked 22 October 2026.
- E.ON Next: Smart Export Guarantee scheme (a supplier page, used only for facts about that supplier), checked 22 October 2026.
Common questions
Can a business get 0% VAT by buying the panels separately from the installation?
No. Notice 708/6 says a supply of energy-saving materials without installation is standard-rated, and the zero rate applies to installing them in residential accommodation and qualifying charitable buildings. A commercial building falls outside both.
Does VAT on commercial solar change on 1 April 2027?
Not for commercial installations, which stay at the standard rate. The notice says that from 1 April 2027 installations of energy-saving materials in the relief categories revert to the 5% reduced rate, so the date matters to residential and charitable work.
Is a battery added to a commercial solar system zero-rated?
No. Notice 708/6 gives the zero rate for storage batteries only in residential accommodation and buildings used solely for a relevant charitable purpose. A battery in a commercial building is standard-rated.
What if the business is not VAT-registered?
The reclaim in Notice 700 is described for a registered person, so an unregistered business has no VAT return to claim on and the VAT stays in the cost. Whether to register is a question for HMRC or an accountant, who can also advise on VAT paid before registration.