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VAT and Energy Saving Materials

21st December 2015

As expected, HMRC is legislating to change the rules regarding the application of the reduced-rate of VAT to the installation of energy saving materials, following a challenge by the European Commission that the UK’s rules went beyond what was permitted in European law.

The change will apply to supplies made on or after 1 August 2016. Following the change solar panels, wind turbines, and water turbines will no longer be regarded as energy saving materials.

Instead only the following will be capable of being reduced-rate:

  1. The supply of services of installing energy saving materials in residential accommodation when the materials are not supplied by the person installing them (installation services only)
  2. The supply of services of installing energy saving materials in residential accommodation, and the materials themselves when supplied to a relevant housing association, or a qualifying person, or where the installation is into a building intended for use for a relevant residential purpose.

Qualifying persons are defined as persons over the age of 60, or in receipt of certain benefits.

If services of installation, and of energy saving materials are supplied to someone not coming within the definition at 2 above, then the reduced-rate will not apply to the goods element of an installation when the net cost of the goods is greater than the net cost of the labour element of installation.

The announcement of this new draft legislation coming as it does just a few days before the Paris Climate Change agreement is ironic but has been forced on the Government by the European Court. 

For further advice or assistance please contact our VAT team

Phil Salmon

VAT Partner
Tel: +44 20 7969 5611