20% VAT scrapped for battery storage

The UK government has exempted retrofitted battery energy storage systems (BESS) from its 20% VAT, starting 1 February 2024.

Since the Spring Statement in 2022, energy saving domestic equipment such as heat pumps and roof-mounted solar have been exempt from VAT. BESS too were exempt, but only when installed alongside other energy-saving materials such as solar.

Following a consultation on the expansion of the VAT relief on energy-saving materials – also announced in the 2022 Spring Statement – the government revealed:

“The government agrees with respondents, though, that this technology meets all of the stated objectives for this VAT relief in its own right, and will therefore bring electrical battery storage within the scope of the relief. This means that the technology will now also qualify for VAT relief when either retrofitted to a qualifying energy-saving materials, or installed as a standalone technology connected to the grid.”

This means the following will also now be included:

• Standalone battery storage. - Projects in which a battery is fitted without supporting solar.
• Retrofit batteries. - Projects in which a battery is retrofitted to an existing solar array.

The government intends to implement these reforms on 1 February 2024.

The Vat relief will also be extended to cover water-source heat pumps and diverters (a technology that redirects excess power from solar or other renewables to a specific load or appliance, commonly a water heater).

These reforms will also be permanent, meaning that, when the zero rate aspect of this relief sunsets on 31 March 2027, the installation of all technologies in scope of this relief will revert to the reduced rate of VAT at 5%.