Blog · Published 2026-05-12

VAT treatment for commercial solar PV in the UK

VAT on UK commercial solar PV is straightforward for most businesses — standard 20% rate, reclaimable through VAT return. But three scenarios add complexity: charities (reduced 5% rate possible), mixed-use property (partial exemption), and the Capital Goods Scheme (5-year adjustment period). Here's the 2026 position.

Standard VAT treatment

For VAT-registered UK businesses, commercial solar PV is straightforward:

- VAT charged: 20% standard rate on the installation (panels + inverters + mounting + labour) - Reclaim: Fully reclaimable through your normal VAT return - Net VAT impact: Zero for fully taxable businesses - Timing: VAT charged on invoice; reclaim in the VAT period the invoice is received

For a typical £100,000 commercial solar install:

- Pre-VAT capex: £100,000 - VAT charged: £20,000 - Total invoice: £120,000 - VAT reclaimed via next VAT return: £20,000 - Net cash: £100,000

For smaller businesses below the £85,000 VAT registration threshold (and choosing not to voluntarily register), VAT on solar is a real cost — typically tipping the registration decision.

Charity 5% reduced VAT rate

Some UK charities qualify for reduced 5% VAT on solar PV under VAT Notice 708/6. The conditions are specific:

Eligible charities:

- Registered charity (Charity Commission for England and Wales; OSCR for Scotland; Charity Commission NI) - Installation is for a charitable building (registered charity ownership) - The work is connected with the charitable activity

Excluded:

- Commercial activities of a charity (e.g. charity shop's commercial premises) - Mixed-use buildings (commercial+charity) - Charity trading subsidiaries (these are normally taxable companies)

The 5% rate applies to:

- Solar PV equipment and installation labour (combined treatment) - Battery storage (if installed at the same time) - Inverters, cabling, mounting, scaffolding for the installation

The 5% rate does NOT apply to:

- Maintenance contracts - Repairs to existing systems - Roof refurbishment (separate building maintenance work)

This is a major saving for eligible charities — £15,000+ on a £100,000 install.

Mixed-use commercial buildings

Many commercial buildings serve mixed purposes — pub-with-letting-rooms, office-with-residential-flats, hotel-with-conference-centre, school-with-residential-boarding.

For mixed-use solar, VAT treatment depends on:

1. Predominant use: If commercial/business is dominant, standard 20% applies 2. Partial exemption: If letting includes residential, partial input VAT may be irrecoverable 3. Apportionment: Capital allowances may need apportionment between commercial and residential portions

For a pub-with-letting-rooms (typical):

- If the bar/restaurant is 70% of floor area: 70% standard treatment, 30% may have partial exemption issues - HMRC partial exemption rules apply; talk to your accountant - AIA / Full Expensing applies to the commercial portion only

Real commercial example: a 30-room hotel with conference centre and integrated residential staff accommodation. Solar PV serving all areas — VAT and capital allowances apportioned. Get HMRC clearance for material apportionment decisions.

Capital Goods Scheme

For VAT-registered businesses with capital expenditure of £250,000+ on a single asset, the Capital Goods Scheme (CGS) applies a 5-year (sometimes 10-year) adjustment period.

Under CGS:

- VAT reclaim is initially based on the year-of-purchase ratio of taxable to total turnover - Each subsequent year, the actual taxable ratio is calculated - Adjustments are made for years where the ratio changes

For solar PV specifically:

- CGS applies if your solar capex exceeds £250,000 - The 5-year adjustment period applies to commercial property assets - The 10-year adjustment period applies to certain buildings

In practice for most commercial solar:

- If your business is fully VAT-registered and remains so: no CGS impact - If your business changes VAT status (e.g. partial exemption changes): CGS may require partial repayment of original VAT reclaim - If you sell the property: CGS adjustments may follow

Get specialist VAT advice for any commercial solar project above £250,000.

SEG income and VAT

Income from the Smart Export Guarantee creates its own VAT considerations:

- For businesses: SEG income is supply of electricity to the SEG supplier; standard VAT treatment applies - For individuals (private generation): Zero-rated under VAT Notice 708/6 - For commercial property: Subject to VAT at the standard rate if the business is VAT-registered

Most commercial businesses already VAT-registered include SEG income in their VAT return automatically. The supplier issues a self-billing invoice that includes the VAT amount.

For charities receiving SEG income: zero-rated if the charity is operating non-commercially; standard rated for commercial activity. Get charity-specific advice.

FAQs

FAQs on this topic

Is VAT reclaimable on commercial solar?

Yes for VAT-registered businesses. Standard 20% rate; fully reclaimable through normal VAT return. Net VAT impact zero.

Does charity qualify for 5% VAT?

Some charities qualify under VAT Notice 708/6 — must be registered charity, installation must be for charitable building, work connected with charitable activity. Major saving when applicable.

What about VAT on battery storage?

Standard 20% rate, reclaimable. If installed at same time as solar for an eligible charity, the 5% rate can extend to battery.

Does the Capital Goods Scheme apply to solar?

For installations above £250,000. Most commercial solar is below this; for larger projects, get specialist VAT advice.