VAT on Solar PPA Electricity: 20%, 5% or 0%?
VAT on PPA electricity follows HMRC's fuel and power rules: standard rate for business, reduced for charities, and 0% for qualifying use to March 2027.
A PPA quote is usually given as a price per kWh before VAT, and the VAT on top depends on who you are and how you use the power. Electricity supplied under a PPA is a supply of fuel and power like any other, so HMRC's normal rules decide the rate. For most businesses that means the standard rate; for charities and some small users it can be much lower, and for a six-month window it is zero.
The three rates
| Rate | When it applies to electricity |
|---|---|
| Standard rate | Supplies for business use, which covers most commercial PPA buyers |
| Reduced rate | Supplies for qualifying use, meaning domestic use or a charity's non-business use, and small supplies of no more than an average 33 kWh a day (1,000 kWh a month) to one customer at one premises |
| Zero rate (temporary) | Qualifying supplies of electricity in Great Britain from 1 October 2026 to 31 March 2027 |
Source: HMRC VAT Notice 701/19: fuel and power (sections 2, 3 and 5). Verified 6 Oct 2026.
Charities and mixed use
A church, school or other charity often uses a building partly for business activities and partly for non-business ones. HMRC's rule is that if 60% or more of the supply is for qualifying use, the whole supply is taxed at the reduced rate; below 60%, only the qualifying share is. The supplier needs a certificate from the customer declaring the percentage of qualifying use at each premises, so a charity signing a PPA should give the provider that certificate before the first invoice.
Domestic use also covers certain residential buildings, including homes providing care for the elderly or disabled, hospices, children's homes and school or university accommodation for students.
The temporary zero rate
On 21 July 2026 the government announced a temporary zero rate for domestic supplies of electricity and other supplies of qualifying use in England, Scotland and Wales. From 1 October 2026 to 31 March 2027 those supplies are liable to VAT at 0%. For a charity whose PPA electricity is at least 60% non-business use, that removes VAT from the invoice for the period. It does not change anything for an ordinary business buyer.
What VAT does to a PPA price
Take a PPA tariff of 15p per kWh before VAT. At the standard rate the invoice price is 18p; at the reduced rate, 15.75p; during the temporary zero rate, 15p. A VAT-registered business can usually reclaim the VAT it pays on business purchases, so the standard rate is mainly a cash-flow item for it. For a charity or other organisation that cannot reclaim VAT on its non-business use, the rate is a real cost, which is why the qualifying-use certificate matters.
The 15p figure is only an illustration; this site's indicative band for on-site PPA tariffs is 8–22p per kWh in year one.
The other tax on the invoice
VAT is not the only tax that depends on the supply route. Solar supplied directly to you by the generator carries no Climate Change Levy, while power from a licensed supplier does, and the levy itself is not charged on a charity's non-business use. Put both taxes into the comparison before you judge a PPA price against your current bill.
See what tariff your site qualifies for
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Get an indicative PPA tariffVAT sits on top of the other charges on a business electricity bill, from network costs to policy levies.
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