Solar Panels & HMRC: VAT, Tax & Capital Allowances Explained
A plain-English guide to how HMRC treats solar panel installations in the UK — from the 0% VAT rate on domestic installs to capital allowances, SEG payments, and business tax relief.
Quick Answer
HMRC charges 0% VAT on solar panels installed in UK homes until 31 March 2027, after which the rate returns to 5%. Businesses can claim a 100% First-Year Allowance on qualifying solar installations under the Annual Investment Allowance or full expensing. Smart Export Guarantee (SEG) payments are tax-free for most homeowners under the £1,000 Trading Allowance, but must be declared if combined trading income exceeds that threshold.
0% VAT on solar panels: HMRC's current rules
From 1 April 2022, HMRC reduced the VAT rate on the supply and installation of energy-saving materials — including solar panels, solar batteries, and heat pumps — in residential buildings to 0%. This zero rate was originally set to expire on 31 March 2027, after which the reduced rate of 5% will apply.
The relief covers both the panels themselves and the cost of installation, provided the installer supplies and fits them as a single contract. If you buy panels separately and pay a different contractor to install them, the rules become more complex (see below).
| Period | VAT rate on solar (domestic) | HMRC notice |
|---|---|---|
| Before 1 Apr 2022 | 5% reduced rate (subject to qualifying conditions) | VAT Notice 708/6 |
| 1 Apr 2022 – 31 Mar 2027 | 0% (zero-rated) | VAT Notice 708/6 (updated) |
| From 1 Apr 2027 | 5% reduced rate returns | To be confirmed by HMRC |
For an average 4kW system costing £7,000, the 0% VAT rate saves homeowners around £350 (vs 5% rate) or £1,400 (vs 20% standard rate). On a battery + solar bundle of £13,000, the saving is £650 to £2,600.
What qualifies for 0% VAT?
The 0% rate applies to a defined list of energy-saving materials when supplied and installed in a UK residential property. The relevant items for solar buyers are:
Solar PV panels
Photovoltaic panels installed on the roof, ground, or outbuildings of a domestic property. Includes inverters, mounting systems, cabling, and labour.
Solar batteries
Battery storage systems — including standalone retrofit batteries from 1 February 2024 onwards, not just batteries installed alongside new solar panels.
Solar diverters
Devices that divert excess solar generation to immersion heaters or hot water tanks. Qualifies when supplied as part of the install.
Solar thermal panels
Hot-water solar collectors. Same 0% rate applies.
What does NOT qualify
- DIY purchases of panels alone — if you buy panels from a supplier and arrange your own installer separately, the panels themselves are standard-rated at 20% VAT. The 0% rate only applies to a single supply-and-install contract.
- Commercial buildings — offices, warehouses, and other non-residential properties pay 20% VAT on solar (though they can usually reclaim it).
- New-build properties — solar installed during construction of a new dwelling is zero-rated under separate new-build rules.
- Standalone EV chargers — do not qualify under the energy-saving materials rules unless installed as part of an integrated solar system.
Business solar: capital allowances & tax relief
VAT-registered businesses pay 20% VAT on solar installations but can usually reclaim it through their normal VAT return. The bigger tax benefit comes through capital allowances, which let businesses deduct the cost of qualifying plant and machinery from their taxable profits.
| Allowance | What it does | Limit / rate |
|---|---|---|
| Annual Investment Allowance (AIA) | 100% deduction in year of purchase | £1m per year |
| Full Expensing | 100% first-year deduction (companies only, new assets) | No upper limit |
| Special Rate Pool (Writing Down) | For solar above AIA / not eligible for full expensing | 6% per year on reducing balance |
| Structures & Buildings Allowance | For solar carports, ground mounts where applicable | 3% per year, straight-line |
HMRC classifies solar PV as “integral features”, which would normally fall into the special rate pool (6% writing-down allowance). However, the AIA and full expensing rules let businesses claim the full 100% in the first year for most installations — subject to limits and conditions.
Example. A limited company buys a £50,000 commercial solar system. Under full expensing, it can deduct the full £50,000 from its taxable profits in year one. At the 25% main rate of Corporation Tax, that’s a £12,500 reduction in tax owed.
Smart Export Guarantee (SEG) payments & income tax
When you export surplus solar electricity to the grid, your SEG supplier pays you for it. HMRC’s position on SEG income depends on the size of the system and the level of earnings.
Domestic homeowners
SEG income from a domestic solar system is generally covered by the £1,000 Trading Allowance — tax-free as long as your total miscellaneous trading income stays under that threshold.
In practice, very few domestic solar systems generate more than £1,000 of SEG income per year, so most homeowners do not owe any tax on it.
Larger systems & landlords
If SEG payments exceed £1,000 per year, or you have other casual trading income, the surplus must be declared on a Self Assessment return as miscellaneous income.
Landlords and businesses always need to declare SEG income as part of their normal trading or rental accounts.
The legacy Feed-in Tariff (FiT) — closed to new applicants in 2019 — is also tax-free for domestic generators thanks to a specific HMRC exemption (Income Tax (Trading and Other Income) Act 2005, section 782A). SEG payments do not have this dedicated exemption, which is why the £1,000 trading allowance matters.
How to claim: VAT, capital allowances & SEG tax
Domestic 0% VAT
Nothing for the homeowner to claim — the installer zero-rates the invoice automatically. Check that:
- The quote and invoice both show 0% VAT
- The supply-and-install contract is with one company (not split)
- The property is your residence (or a domestic let)
If you are wrongly charged 5% or 20% VAT, ask the installer to issue a corrected invoice or contact HMRC for guidance.
Business capital allowances
Claim through your Corporation Tax (CT600) or Self Assessment return. Your accountant will:
- Add the qualifying solar cost to the relevant capital allowances pool
- Apply AIA, full expensing, or writing-down allowance as appropriate
- Keep the installer invoice as evidence (HMRC may request it)
SEG income (over £1,000)
Declare on the “Other UK income” section (SA100 page TR3) of your Self Assessment, or under miscellaneous income on your business accounts.
Keep your SEG supplier’s annual statement showing total payments received in the tax year.
Solar & HMRC: Frequently Asked Questions
Do I pay VAT on solar panels in the UK?
No, not on a domestic install. HMRC charges 0% VAT on solar panels and battery storage installed in UK homes between 1 April 2022 and 31 March 2027. After that, the rate returns to 5%. Commercial installations remain at 20% VAT, though VAT-registered businesses can typically reclaim it.
Does HMRC tax Smart Export Guarantee payments?
Generally no, for domestic homeowners. SEG income is covered by the £1,000 Trading Allowance, meaning most households do not owe any tax. If your SEG payments plus other miscellaneous trading income exceed £1,000 in a tax year, you must declare the excess on a Self Assessment return.
Can a business claim 100% tax relief on solar panels?
Yes, in most cases. UK businesses can use the Annual Investment Allowance (£1m per year) or, for limited companies, full expensing to deduct the entire cost of a qualifying solar installation from taxable profits in the year of purchase. At the 25% Corporation Tax rate, that is £25,000 of tax relief on every £100,000 invested.
Is there VAT on solar batteries from HMRC?
No. From 1 February 2024, HMRC extended the 0% VAT rate to standalone retrofit solar batteries — not just batteries installed alongside new panels. The zero rate runs until 31 March 2027.
What is the HMRC VAT notice for solar panels?
VAT Notice 708/6 (Energy-saving materials and heating equipment) covers the rules for solar panels, batteries, and other qualifying technologies. Section 2 lists the energy-saving materials eligible for the zero rate; section 3 covers when the rate applies.
Do I have to tell HMRC I have solar panels?
Not for domestic installations. The 0% VAT is applied at point of sale by the installer, and SEG payments under £1,000 are covered by the trading allowance with no reporting required. You only need to inform HMRC if you receive over £1,000 in SEG income or if solar is part of a business.
Are solar panels tax deductible for landlords?
Yes, but the rules are nuanced. Landlords letting residential properties cannot usually claim capital allowances on items that are part of the dwelling itself (the abolished Wear and Tear Allowance is now Replacement of Domestic Items Relief). However, if solar is installed in a shared area (HMO common parts) or on a furnished holiday let (FHL), capital allowances may apply. Speak to a tax adviser.
Will the 0% VAT rate on solar continue after 2027?
As of the latest HMRC guidance, the 0% rate is scheduled to revert to 5% on 1 April 2027. The government has not announced plans to extend the zero rate beyond that date, but tax policy is reviewed each Budget. We will update this guide if the rate is extended.
Related Guides
Solar Panels & Tax
HMRC rules on VAT, capital allowances, SEG income, council tax, and CGT.
Solar Panel Costs
Full cost breakdown and payback periods.
Smart Export Guarantee
Best SEG tariffs compared. Earn 3–15p/kWh selling solar electricity back to the grid.
Commercial Solar
Solar panels for UK businesses: costs, capital allowances, and ROI.
Sources
- HMRC — VAT Notice 708/6 Energy-saving materials — gov.uk
- HMRC — Capital Allowances — gov.uk
- HMRC — Tax-free allowances on property and trading income — gov.uk
- Ofgem — Smart Export Guarantee — ofgem.gov.uk
Last updated: May 2026. This guide is general information, not tax advice. For specific situations, consult a qualified accountant.
Fact-checked by John Rooney, Solar Energy Editor. Editorial policy
John Rooney is the founder of Solar Info and has been covering the UK solar energy market since 2023. He fact-checks all content against official MCS and Ofgem data and maintains relationships with MCS-certified installers across the UK.
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