Can You Claim VAT Back on Commercial Solar Panels? (2026 UK Guide)

Yes. A VAT-registered business can reclaim the input VAT — usually the standard 20% — charged on a commercial solar panel installation, treating the system as a business asset and recovering the VAT through its normal quarterly VAT return, provided the panels support taxable business activity. Importantly, the widely-quoted 0% VAT relief on solar panels is a residential measure only — it applies to installations in domestic dwellings and does not apply to commercial rooftops. A trading company will typically be charged 20% VAT on its solar install and then reclaim that 20% in full, so the real cash cost of the system is the ex-VAT price. The mechanics change if your business is partially exempt, a charity, a landlord, or buying power through a PPA — those cases are covered in full below.

This guide sits alongside our detailed page on VAT on commercial solar panels, which walks through the returns process and the paperwork HMRC expects.

Not tax advice. This is general information for UK businesses as at 2026. VAT recovery depends on your specific VAT status, the mix of taxable and exempt supplies you make, and how the asset is owned. Confirm your position with your accountant or a VAT specialist before filing.

Why is commercial solar charged at 20% VAT, not 0%?

The 0% VAT rate people read about online comes from the zero-rating for the installation of energy-saving materials (ESMs) in residential accommodation — homes, and buildings used for a relevant residential purpose such as care homes. That relief runs until 31 March 2027, after which it is scheduled to revert to the reduced 5% rate. Either way, it is tied to domestic property.

A commercial installation on a factory, warehouse, office, farm building or retail unit falls outside the residential relief, so the installer charges VAT at the standard 20% rate. That is not a problem for a VAT-registered business, because the whole point of the VAT system is that registered businesses reclaim the VAT they are charged on their inputs. The 20% is a cash-flow line, not a real cost — you pay it to the installer, then recover it from HMRC on your next return.

The trap is assuming “solar is 0% VAT” and budgeting the ex-VAT figure while the invoice lands at +20%. Budget the VAT-inclusive number for cash flow, then plan to recover it.

How does a VAT-registered business reclaim the input VAT?

The process is the ordinary input-tax recovery route, not a special scheme:

1. The installer issues a valid VAT invoice showing the 20% VAT separately.
2. You record the purchase in your accounts and include the VAT as input tax (box 4) on the VAT return covering that period.
3. HMRC either nets it against the output VAT you owe or refunds the balance.

Because solar PV is a fixed asset (plant and machinery bolted to the building), the recovery is treated as capital input tax. For most fully-taxable trading companies that is the end of the story: 20% in, 20% out, net cost equals the ex-VAT price. The system feeds electricity into your own taxable operations, so the VAT is directly attributable to taxable supplies and fully recoverable.

What if my business is partially exempt or makes exempt supplies?

This is where full recovery can break down. If your business makes exempt supplies — for example financial services, insurance, most healthcare, education, or certain property rental where you have not opted to tax — you may be partially exempt. In that case you can only recover the proportion of input VAT that relates to your taxable activities.

The solar array typically powers the whole building, so the VAT on it is treated as residual (used for both taxable and exempt activity) and apportioned using your partial exemption method — commonly the standard income-based method. If your recoverable proportion is, say, 80%, you reclaim 80% of the solar VAT and the remaining 20% becomes an irrecoverable cost baked into the asset. There is a de minimis limit: if total exempt input tax is below the HMRC threshold, you may still recover it all — worth checking with your accountant.

Any VAT you cannot recover is not lost economically — it increases the capital cost of the asset, which in turn increases the base for capital allowances solar panels relief (see the AIA section below).

VAT reclaim by scenario — the quick-reference table

Buyer / structure	Charged VAT on install?	Input VAT reclaim position	Net effect on capex
VAT-registered trading company (fully taxable)	20%	Full — recovered on the VAT return	Real cost = ex-VAT price
Partially exempt business (e.g. finance, healthcare, insurer)	20%	Partial — apportioned to taxable use; de minimis may allow full	Irrecoverable slice added to asset cost
Charity / not-for-profit (non-business or exempt use)	20% (some qualifying reliefs may apply)	Usually little or none where use is non-business	Most/all VAT is a real cost
Landlord installing on let commercial property	20%	Recoverable only if the letting is taxable — i.e. you have opted to tax that building	Depends on option to tax
PPA / third-party-owned system (provider owns the panels)	Provider pays & reclaims; you buy the power	You reclaim VAT on the electricity you buy, not the hardware	No capex; VAT on power bills recovered as normal input tax

Read the row that matches your structure — the reclaim position is driven by who owns the asset and what kind of supplies the electricity ultimately supports.

Can a landlord claim VAT back on solar for a let building?

Only if the rental income is taxable for VAT. Commercial letting is exempt by default, which would block recovery — but landlords frequently opt to tax (“election to waive exemption”) the building, which makes the rent standard-rated and, in turn, makes the associated input VAT (including the solar install) recoverable. If you have not opted to tax, you generally cannot recover the VAT on the panels.

There is also the question of who benefits from the electricity. If the landlord sells power to tenants or exports to the grid under the Smart Export Guarantee, those are taxable supplies that support recovery. Structuring this correctly matters, and it interacts with service-charge VAT — take advice before installing on a multi-let estate.

How does VAT interact with a PPA (Power Purchase Agreement)?

Under a PPA, a third party owns and installs the panels on your roof and sells you the electricity, usually below grid price. You never buy the hardware, so there is no capital VAT for you to reclaim — the PPA provider recovers the install VAT because they own the asset and are making taxable supplies of electricity.

What you get instead is a monthly electricity invoice with VAT on it (electricity to a business is standard-rated at 20%, or 5% for low-usage/qualifying supplies). That VAT is ordinary input tax and a VAT-registered off-taker recovers it exactly as it recovers VAT on any utility bill. So the VAT position is neutral either way — the difference between PPA and cash purchase is about capex, ownership and capital allowances solar panels, not VAT. Our page on are commercial solar panels worth it works through the cash-purchase-versus-PPA economics in detail.

How does VAT interact with the Annual Investment Allowance (AIA)?

VAT recovery and capital allowances are two separate reliefs, and getting the interaction right avoids double-counting:

• If you can reclaim the VAT (fully-taxable business), your capital allowances are calculated on the VAT-exclusive cost, because the recoverable VAT never really cost you anything.
• If you cannot reclaim the VAT (charity, partially-exempt slice, un-opted landlord), the irrecoverable VAT is added to the capital cost and qualifies for allowances along with the rest.

The Annual Investment Allowance lets a business write off 100% of qualifying plant and machinery — solar PV included — against taxable profits in the year of purchase, up to the £1m annual cap. At the 25% main rate of corporation tax that is worth roughly a 25% cut in net cost on top of the VAT recovery. So a fully-taxable company effectively gets the VAT back and a quarter of the ex-VAT price back through tax relief.

Worked example on a 100kW system:

Line	Amount
System price (ex VAT), ~£700–£1,100/kW	£90,000
VAT at 20% charged on invoice	£18,000
VAT reclaimed via VAT return	–£18,000
Net cash cost after VAT recovery	£90,000
AIA relief at 25% CT on £90,000	–£22,500
Effective net cost after VAT + AIA	~£67,500

That 100kW array generates roughly 90,000–95,000 kWh a year (UK commercial yields run 900–1,150 kWh/kWp), so the tax and VAT treatment materially shortens payback. Grant funding, where available, can improve this further — see commercial solar grants for the current schemes and eligibility.

FAQ

Can I claim VAT back on solar panels for my business? Yes, if you are VAT-registered and the panels support taxable business activity. You reclaim the 20% input VAT through your normal VAT return as capital input tax. The net cost of the system becomes the ex-VAT price.

Do commercial solar panels get 0% VAT like homes do? No. The 0% VAT rate is a residential relief for energy-saving materials installed in dwellings (running to 31 March 2027, then 5%). Commercial installations are charged the standard 20%, which registered businesses then reclaim.

Can a business that isn’t VAT-registered reclaim the VAT? No. If you are below the registration threshold and not voluntarily registered, you cannot recover input VAT — the 20% is a real cost. It does, however, increase the capital-allowances base.

Does reclaiming VAT reduce my capital allowances? Yes, in effect. If the VAT is recoverable, capital allowances (including AIA) are calculated on the VAT-exclusive cost. Only irrecoverable VAT is added to the asset value for allowances.

Is battery storage treated the same for VAT? A commercial battery installed with the solar system as business plant is generally recoverable on the same basis, at 20% input VAT for a taxable business. Commercial storage runs around £400–£700/kWh, so the VAT line is significant — reclaim it the same way.

The bottom line

For the great majority of UK businesses — a fully VAT-registered trading company installing solar on its own premises — the answer is simple: you are charged 20% VAT and you reclaim all of it, so the panels cost you the ex-VAT price, and AIA then trims roughly another 25% off through corporation tax relief. The complications live at the edges: partial exemption, charities, un-opted landlords and PPA structures. Identify which row of the table you sit in, confirm it with your accountant, and budget the VAT-inclusive figure for cash flow even though you will recover it.

Ready to model your own numbers? Get a commercial solar quote and we will set out the VAT, AIA and payback position for your specific building and VAT status.