We reported previously on the likelihood of Energy Saving Materials losing their 5% VAT rate following the European Court’s ruling against the UK. This is where the UK was found in breach of the EU VAT Directive in that the 5% rate was applied too generously and primarily failed the ‘social’ aspect of the VAT relief.
HMRC have begun a consultation process that inevitably will lead to the removal of the 5% VAT rate – or in certain circumstances retention of the rate but only where the ‘as part of a social policy’ aspect can be met. The proposal is for the relief to be allowed for those in receipt of benefits, over the age of 60 or for specific types of buildings – housing associations and group style accommodation such as care homes and similar.
It is proposed to withdraw the relief in full for solar panels and wind or water turbines as whilst these undoubtedly save energy by self-generation, they are seen to be in breach of the ‘renovation of property’ condition.
Currently the 5% rate applies to the supply & installation of the following items, but only on residential properties and only where retrofitted;
- Insulation & Draught-Stripping
- Solar & Photovoltaic Cells
- Wood-Fuelled or Biomass Boilers
- Radiator Valves & Boiler Controls (but not energy efficient boilers)
- Air-Source & Ground-Source Heat Pumps
The installation of these items cannot be part of a larger scheme (such as insulating a new extension or part of a re-roof, or adding valves to a new central heating system). The relief on charitable buildings was removed in August 2013 – again at the demand of the EU.
The planned implementation date is 1st August 2016 and we are expecting anti-avoidance provisions to halt abuses of advance invoicing or similar. The full HMRC document can be found at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/483363/VAT-Changes_to_the_reduced_rate_of_VAT_for_Energy_Saving_Materials_-_consultation__M7000_.pdf
To discuss this in more detail or to discuss the scope for VAT savings on a current scheme, please contact a member of the Property Team.