VAT on battery storage integrated with solar PV

Summary

The market for domestic battery storage with solar photovoltaics (PV) is set to grow in 2017 and beyond. There is currently a lack of clarity over whether batteries attract VAT at 5% or 20% when installed at the same time as, or retrofitted to, a PV system. There is an understanding among industry representatives that batteries attract 5% VAT when installed at the same time as PV.
Following a meeting with HMRC the Solar Trade Association (STA) agreed to provide evidence to justify why battery storage should attract reduced rate VAT at 5% where installed alongside a PV system, including cabling, control panel and AC/DC inverters. Specifically HMRC asked for evidence on how battery storage systems connect to and interact with PV systems and the grid.

Ask 1: The STA asks HMRC to consider the evidence provided below, and as a matter of urgency to issue a notice giving clarity on how VAT applies to battery storage connected to a PV system. Without this clarity there are commercial risks facing installers and risks to fair competition.
In addition the STA hopes to provide evidence to justify why battery storage should attract reduced rate VAT whether installed at the same time as, or retrofitted to a PV system. Storage integrates with the PV system to provide an ancillary service in either case, enhancing the energy-saving benefit by reducing grid-related electricity losses. This briefing note is intended as a starting point for this discussion.
Ask 2: The STA seeks to engage HMRC to explore the possibility of a 5% VAT rate for all battery storage, whether installed at the same time as a PV system or retrofitted to an existing PV system. This would be a longer process, and before engaging on this we first wish for HMRC to issue a notice on the current situation, as per Ask 1.

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