What Tax Incentives Are There for Solar Installation in the UK?

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Jack Ayre

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Installing solar panels is an excellent way to reduce your ever-increasing energy bills and enjoy sustainable and green energy. That being said, one of the primary downsides of installing solar panels is the large upfront cost.

Luckily, however, there are government-supported tax incentives for solar installation across the UK, which can benefit both homeowners and businesses.

If you want to find out more about these incentive programs, how they work, and eligibility criteria, keep on reading this guide. So without further ado, let’s dive right in!

The 0% VAT Reduction

This one is also known as zero percentage point VAT reduction. As the name suggests, this remarkable tax incentive helps both individuals and businesses to get a massive cut on their value-added tax.

How Does 0% VAT Reduction Work?

The standard VAT across the UK is around 20% for most services and goods. Previously, several home energy services and items had a reduced VAT of around 5%.

However, in April 2022, the government announced a new program that brings this 5% down to 0% on various energy-efficient systems. This doesn’t only include buying solar panels but also installing them.

The program is due to run for around 5 years in total, lasting until the 31st of March, 2027. 

How Much Can You Save with the 0% VAT Reduction?

Savings on solar power with the 0% VAT heavily depends on the size of the system you’re going to install.

For instance, the average household would pay around £5,000 to £10,000 for standard 200W panels and high-capacity batteries needed to power a house. 

The additional VAT, in that case, would be around £250 to £500 for 5% reduced VAT or £1,000 to £2,000 for 20% standard VAT. The new scheme could save individuals and businesses that much!

Who Is Eligible for 0% VAT Reduction?

The program applies to all households. Since VAT applies to goods and services, businesses can also benefit from this scheme.

The 0% VAT Reduction initially applied to all households across England, Wales, and Scotland, but was then extended to Northern Ireland as of May 2023.

How to Apply for 0% VAT Reduction on Solar

Luckily, there aren’t any special requirements for UK-based households and property owners to become eligible for the 0% VAT, as it’s applied to the energy-efficient goods and services themselves.

The Annual Investment Allowance (AIA)

The Annual Investment Allowance is a kind of capital allowance that allows you to deduct and claim tax reliefs on assets that your business needs to buy. Luckily, installing solar panels is one of the items that qualify for this allowance.

How Does Annual Investment Allowance Work?

According to the official government website, the AIA allows businesses to deduct up to 100% of the price of an eligible item like solar panels before they need to calculate the taxes on their profits.

The maximum limit for what a business can claim per year changed various times over the years. Since January 2019, the limit has permanently reached a record high of £1 million.

While solar panels are among the eligible assets for the AIA, you should keep in mind that there are certain situations where you can’t claim them. These include

  • If you already used the same solar panels for other purposes before starting your business. (for example, transferring the panels from your house to your business).
  • If the solar panels were given or gifted to your business

Besides the AIA, solar panels also qualify for additional temporary tax breaks. These include:

  • 50% First Year Allowance (FYA)
  • 130% Super-Deduction (SD)

 

According to a report by the government website, businesses eligible for these allowances are expected to save up to 25% on their tax spending, as long as they’re within the stated limit.

Additional Solar Power Incentive Programs to Keep in Mind

Besides tax breaks, there are other incentive programs that can help you save a lot of money while installing solar panels. In the following section, we’ll have a quick look at them:

Smart Export Guarantee

The SEG is a scheme supported by the UK government and was launched back in January 2020. 

The scheme requires licensed energy suppliers to pay consumers who generate low-carbon electricity (such as solar panels) in exchange for exporting any excess energy their households produce into the national grid.

In other words, if your house is powered by solar panels and you produce more energy than you consume, you can offload your excess into the grid and receive payments accordingly.

Keep in mind that only small-scale electricity producers (up to 5,000 kWh or 5mWh) can qualify for the SEG. 

The amount of money you can earn through this scheme will vary from one energy supplier to another. For instance, E energy and EDF pay 1p for every kWh of power exported while Octopus Energy pays up to 15p per kWh. 

Energy Company Obligation 4

This one is also known as the ECO4, which was launched in April 2022 as an updated version of the ECO3 scheme and is expected to last until March 2026.

The ECO4 is a £4 billion government-funded scheme that offers major grants and savings on solar panel installation. 

Unlike the SEG, the ECO4 eligibility criteria vary from one council to another. This increases the number of eligible households, as every council sets the requirements based on the current circumstances of its local jurisdiction.

Extra Tips to Save Money While Installing Solar Panels

Besides government schemes and tax incentives, there are various ways to reduce the costs of your solar panels. Let’s have a look at some of the top tips to keep in mind:

  • Get Multiple Quotes

Check various providers and get multiple quotes along with details about the setup and quality. This helps you find out more about the average price and get the most value for your investment. ESE Solar can offer you a highly competitive no obligation quote. 

  • Buy the Proper Size and Type of Solar Panels: 

Use the expertise of ESE Solar to help you determine how many appliances you want to switch to solar, or whether you want to go fully off-grid. This can give you an idea about the proper type and size of panels and batteries you need to install.

  • Use a Professional Installation Company

While professional installation comes with a cost, this ensures the maximum level of durability and reliability regarding many aspects of the installation process. This helps in keeping your solar panel system running smoothly for the longest time and saves you upkeep costs in the long run thanks to warranties.

Solar tax incentive FAQs

How much do solar panels cost?

The upfront cost of solar panels and their installation can be fairly high, which is one of the main hurdles a household faces while trying to go solar. 

The exact cost may vary depending on the type and size of the solar panels in question, but a typical household may need anywhere between £5,000 to £10,000, which covers the solar panels, batteries, and installation.

Can solar panels increase the value of your property?

Solar panels are one of the best ways to increase the value of a property, whether it’s a household or a business.

This is because solar panels increase energy efficiency and savings dramatically over the years, which increases buyers’ appeal, especially since you save them the hassle of installing the system themselves.

As for businesses, running on solar power, even if partially, can remarkably reduce carbon emissions, which makes it eligible for several grants and tax breaks, saving more money in the long run.

Does the UK government provide solar power grants?

The UK government offers a huge variety of incentive programs and schemes in an effort to encourage households to install solar panels. 

These programs are part of the government’s plans to encourage domestic renewable energy for households and reduce carbon emissions.

Some of the popular solar grants offered by the government are now expired, such as Green Homes Grant, Feed-in Tariff, and Free Solar Panel Scheme. However, the government replaced them with new schemes and incentive programs to encourage more homeowners to go green!

Solar tax incentives conclusions

As you can see, there are plenty of grants, programs, and schemes out there that both homeowners and businesses can use to reduce the high initial costs of installing solar panels.

If you’re looking for a reliable and professional solar panel builder, don’t hesitate to contact ESE Solar. We offer excellent price match options and extended warranties along with several financing options for up to 7 years to make sure that you get the most value for your money!

 

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Born in North West England, Jack kicked off his career in the insurance arena, dealing with claims for three years. Always up for a challenge, Jack leapt out of his comfort zone and embarked upon 5 years of excitement with the military.

Working for the Ministry of Defence, Jack specialised in counter-terrorism which took him to places such as Dubai, Oman, Iraq, Norway and Bahrain. During this period he worked with various Governments implementing strategic operations to prevent terrorism.

After travelling around various countries Jack increasingly came across various forms of solar from large solar farms to domestic solar panels. From here Jack took a keen interest in all things solar and started reading about the technological capabilities with a view to entering the industry after his career in the Ministry of Defence.

Once home after 5 fruitful years, Jack had 3 months leave in which he immersed himself in a solar crash course and got applying for jobs within the solar sector. He came across ESE Solar, a long-established forward-thinking company whose head office was only a stone’s throw away from him. He picked up the phone to see if there were any vacancies and within a week had a successful interview and obtained a full-time job, starting in the technical team.

Within the first few months, Jack onboarded in various online courses during work and social hours to speed up his knowledge of all things solar. Due to his strong work ethic and thirst for knowledge Jack was promoted to Head of Technical at ESE Solar. He currently leads the team and oversees the product development of new technologies within the company alongside assisting where necessary on their maintenance department.

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