For many years a Reduced Rate of 5% has been available on the supply and installation of the following items installed in charitable* & domestic properties.
- Solar panels & photovoltaic panels
- Wind & water turbines
- Air source & ground source heat pumps
- Central heating controls
- Draught stripping
- Combined Heat & Power units & wood-fuelled boilers
It is important to understand that this is to encourage the retro-fitting of said materials into existing properties – furthermore we need to demonstrate that the items are not part of a larger scheme or piece of work.
Insulation installed as part of an extension is seen as new build works and not 5% rated Energy Saving.
Central heating controls installed as part of a central heating replacement scheme would be seen as new works and not divisible in order to 5% rate the controls.
* Removal of the 5% rate for Charitable Buildings
Since 1 August 2013 the 5% rate for Energy Saving Materials is no longer applicable to charitable properties in reaction to a challenge by the EU.
Muted changes to 5% rate on domestic proprties
There was a further EU challenge in 2016 whereby it was found the UK was allowing the relief to be used too widely on domestic properties, and had failed to restrict the benefit to fulful the ‘social’ policy of EU reduced VAT rates.
To date there has been no news on the proposed changes of restricting reliefs to persons with a social need, and removing the ‘generating’ items from the eligible list (solar ponels & turbines) that was supposed to come into effect from the 2016 Finance Act.
Enerphit & Passivhaus
In a similar vein to Disabled Relief, the extent of the 5% rate on Energy Saving Materials is also a directed and targeted releif aimed at specific circumanstances, and rarely reflects the works required to substantially upgrade a proprties overall thermal standards.
Likewise, the purchase of materials that have increased thermal attributes or insulating properties [triple glazed winodws for example] do not qualify for relief; as the legislation considers their primary purpose (windows) first and foremost.
Care is therefore required when retro-fitting for passivhaus status, as the overall drive to increase the buildings energy perfomance is largely ignored for VAT, coupled with the danger of Customs vieweing such a project as a Single Supply of ‘Renovation’. One of the critieria for 5% VAT is the works are divisible and separate from other building works (why we cannot 5% insulation installed as part of a new extention – it is one 20% rated supply of ‘construction’). We saw this in the recent Tribunal Case of A C Groves where reconstructing prefab walls with thermally insulated blockwork works were rebuffed from the 5% rate; being seen as ‘far beyond just the supply of insulation’.
To maximise VAT relief on schemes such as this – and to ensure the qulaifying elements are not subsumed as part of an overal 20% renovation, it is necessary to consider how works are both procured and invoiced; in order to ensure the scheme is a Mixed Supply and thus capable of being viewed elementally.
Lastly, whilst HMRC will not give approval on day to day VAT matters, technology in this sector is overtaking the published guidance, and the use of cutting-edge pracises and materials may permit a Clearance Request to be sent to HMRC for specific schemes.