A Guide to the VAT Increase for Renewables

The government has passed legislation for a VAT hike from 1st October 2019 for those that wish to install some types of renewable energy solutions. On the same day the House of Commons passed legislation for net zero greenhouse gas emissions by 2050, they also approved a VAT rise from 5% to 20% for biomass boilers, battery storage and solar installations. This news comes following a petition by Good Energy which reached over 11,000 signatories.

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Following a decision by the Court of Justice (part of the European Commission) they declared their belief that the UK implemented the tax relief too widely . This change would align the UK with EU law while retaining as much relief as possible for people wanting to make their homes more renewable. According to the new VAT guidelines, the change will affect supplies made on or after 1st October 2019 but exclude supplies paid for by that date or made in accordance with a contract entered before this date.

According to the new VAT guidelines, the change will affect supplies made on or after 1st October 2019 but exclude supplies paid for by that date or made in accordance with a contract entered before this date.

The reduced rate of 5% VAT would still apply (except for wind and water turbines) for the supply and installation of energy saving material if: 

  • The residential homeowner is 60 or over. 

  • The residential homeowner receives certain benefits. 

  • The home is owned by a defined housing association  

  • The installation is part of social policy

  • The cost of material is less than 60% of the total cost of installation. If the cost of material is more than 60%, the 5% rate will apply to the labour element of the cost. This 60% is said to comply with EU law and minimise the impact on UK businesses.

Despite these VAT changes for clean energy, the reduced VAT rate will remain standing for fossil fuels such as coal and gas. These changes come following a decision by the European Court of Justice in 2015 that forces a VAT increase for solar installation on new build homes from 2016 (5). This new increase, however, will now affect the homeowners that want to retrofit their existing properties.

Good news, though, does come from the introduction of the Smart Export Guarantee, set to come into effect from 1st January 2020. More details to come in our next blog post…




Sarah Levett