The Supreme Court has confirmed that the fact that solar panels are being installed on a property does not mean that part of the VAT on the construction costs may be deducted.
VAT-registered business
Private owners of solar panels who supply energy (back) to the grid are considered traders for VAT purposes. This means that VAT must be paid on the energy supplied. However, it also means that the VAT paid on the purchase of the panels can be reclaimed.
In most cases, the small business scheme can be applied in the year following the purchase of the panels. As a result, no VAT needs to be paid on the energy supplied.
New-build
When solar panels are installed on a newly built house, that house is also used for activities subject to VAT. This has raised the question of whether the VAT payable on the costs of building the house may be partially deducted.
However, the Supreme Court is of the opinion that the construction costs would have been incurred even if no solar panels had been installed on the new-build house. Consequently, there is an insufficient link between the construction of the house and the supply of energy from the solar panels. Therefore, the VAT on the construction costs is not partially deductible.