HMRC confirms intent to roll-out 20% VAT rate on solar panels on 1 August 2016

At present, homeowners who install solar PV panels pay VAT at the reduced rate of just 5%. From 1st August this year, HMRC plans to collect VAT at the higher rate of 20% which will add approximately £900 to the price of a 4kWp system and add up to two years to the payback.

Those wishing to install solar panels before the August change will pay VAT at the current low rate of just 5%. Thereafter, the cost of going solar will increase by approximately £900. Once the system is registered, homeowner’s receive 3NIROC (Northern Ireland Renewable Obligation Certificates) for EVERY unit of solar electricity produced, tax-free for 20 years. This is worth 12p per unit and the panels also earn a small income for any surplus solar electricity that is exported to the grid. The more solar electricity you use the higher your electricity bill savings will be. The income and savings from a typical 4kWp system are £700-£800* per year.

The HMRC plan stems from an EU court ruling that the UK’s current reduced rate of VAT for solar and other energy saving products violates the EU’s VAT directive as they cannot be considered a ‘renovation to a property’. However it is only solar, along with wind and hydropower, that HMRC is proposing to completely remove from the 5% VAT level.

*Based on a SE/SW-facing un-shaded roof where the homeowner uses half the solar electricity

Further reading HERE

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