By the PPA Funding team Last updated
VAT on commercial solar depends on how the system is bought and used. A VAT-registered business can usually recover VAT on qualifying business purchases, and how a PPA, lease or outright purchase is treated for VAT differs. Rules change, so confirm your specific position with your accountant or HMRC.
How VAT applies to business solar
VAT is a tax on most goods and services, charged at a rate set by HMRC. A domestic and commercial split matters here: reliefs that apply to homeowners installing solar do not necessarily apply to businesses in the same way. For a VAT-registered company, VAT on genuine business purchases is often recoverable through the normal VAT return, subject to the usual rules.
That recovery is the key difference from a household. A homeowner generally cannot reclaim VAT, whereas a VAT-registered business buying solar to power its trade usually can treat the VAT as input tax, provided the purchase relates to taxable business activities. The detail depends on your VAT status and how the system is used, which is where advice matters.
Purchase, lease and PPA differences
The funding route changes the VAT picture. With an outright purchase (CapEx), you buy the system and account for the VAT on the capital cost like any other asset purchase. With hire purchase or a lease, VAT applies to the payments or the financed amount, and the timing and treatment differ from an outright buy.
Under a PPA you are not buying the equipment at all during the term; you are buying electricity. VAT then applies to the electricity you pay for, in the same way VAT applies to your grid electricity bills, rather than to a capital purchase. Because these routes are taxed differently, the VAT position is one factor to weigh alongside cash flow and ownership when choosing between them.
Confirm the detail with your accountant
This is general information, not tax advice. VAT rules are detailed, they change, and how they apply depends on your business's VAT status, its activities and the exact structure of the deal. The reliable answer for your situation comes from your accountant or directly from HMRC guidance, not from a general article.
Raise VAT early when you request a proposal, so the figures you compare are on a consistent basis: it is easy to mislead yourself by comparing a VAT-inclusive number against a VAT-exclusive one. Your accountant can confirm what is recoverable and how each funding route affects your net cost.
This guide is general information, not financial or tax advice. Your circumstances determine what applies — please confirm with your accountant or advisor. Get a tailored proposal →
Frequently asked questions
Can my business reclaim VAT on a solar installation?
A VAT-registered business buying solar for its taxable activities can often recover the VAT as input tax, but it depends on your VAT status and how the system is used. Confirm with your accountant or HMRC, as the rules have conditions.
Is there VAT on PPA payments?
Under a PPA you pay for electricity rather than buying equipment, so VAT applies to those payments much as it does to a normal electricity bill. Your accountant can confirm the treatment and what your business can recover.
Sources & further reading
Related guides
- Capital allowances on commercial solar: full expensing & AIA explained
- How solar improves your commercial EPC (and helps with MEES)
- How much can your business save with commercial solar?
See our funding options, commercial solar and solar by industry pages.