Search “VAT on solar panels” and most of what you’ll find celebrates the 0% rate. For a business, almost all of it is irrelevant — the zero rate was never for you. Here’s the actual position, and why it matters far less than it sounds.
The 0% rate is residential and charity only
The zero rate on energy-saving materials — solar panels included, and batteries since February 2024 — applies to installations in residential accommodation and, since February 2024, buildings used solely for a relevant charitable purpose. It runs until 31 March 2027, after which it reverts to the reduced 5% rate.
Business premises are simply outside the relief. HMRC’s guidance is explicit that installations in hotels, inns and similar establishments are standard-rated — and the same goes for factories, warehouses, offices and depots. A commercial solar installation carries VAT at 20%.
Why 20% rarely matters
For a VAT-registered business using the system in its taxable activity, the VAT on a solar installation is input tax — recovered through the VAT return in the normal way. The 20% is a cashflow item between invoice and return, not a cost of the project.
That’s why Novalux quotes, our published price bands and our payback modelling are all ex VAT — for the customers we serve, the VAT washes through. The numbers that decide the project are the 2–5 year payback and the tax relief on the capital cost, not the VAT rate.
The exceptions are businesses that can’t fully recover input tax — those making exempt supplies, or with significant non-business use. If that’s you, the VAT is a real cost line and belongs in the appraisal; take advice from your accountant early.
Farms: two rates on one holding
Farms are where the residential/business line actually runs through a single site. Farm buildings — barns, dairies, grain stores, poultry sheds — are business premises: 20%, recoverable for the VAT-registered farm business. The farmhouse is residential accommodation, so an installation serving it can qualify for the zero rate.
The practical advice: decide what each part of the system serves before the invoice is raised, and get your accountant’s view on anything mixed — HMRC’s guidance doesn’t set a neat apportionment rule for buildings that are partly residential, so edge cases need a professional answer, not a website’s.
Charities
Since 1 February 2024, buildings used solely for a relevant charitable purpose — broadly, non-business charity use or village-hall-style community use — qualify for the zero rate too. A charity trading commercially from the building generally won’t qualify; the “solely” test is the catch. Again: confirm before contract.
The bigger tax picture
VAT is the least interesting tax on a commercial solar project. The one that moves the business case is capital allowances — 100% year-one relief through the £1m Annual Investment Allowance for most installs — plus the business-rates exemption on the equipment until 2035. We’ve covered both in capital allowances on solar and battery storage, and every live scheme is on the grants & tax relief page with sources.
Every Novalux Quick Quote itemises the equipment so your accountant can apply the right treatment without archaeology. Request yours — system design, 25-year cashflow and payback within 24 hours.