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Plans to Increase Tax for Energy Saving Materials Up for Consultation



Plans to increase tax for energy saving materials are up for consultation. Businesses who supply and install energy saving materials (ESMs) are being urged to feedback to HMRC regarding potential VAT changes ahead of a 3 February deadline. August 2016 could see the implementation of new legislation which would mean that the rate of VAT on some ESMs increases from 5% to 20%.

In June 2015 the European Court of Justice ruled that the UK cannot apply a reduced VAT rate for supply or installation of certain ESMs. The court found that the UK had implemented an EU relief incorrectly by failing to restrict the benefits to certain social groups or those with social needs, and covering installation of items that did not constitute “provision, construction, renovation and alteration of housing”.

As a result of this the Government intends to amend the relevant legislation, retaining as much of the relief as possible, whilst also ensuring the UK law is fully compliant with EU law. The main proposals are:

  • Solar panels, wind turbines and water turbines will be removed from the list of ESMs as they are seen as means of generating electricity rather than renovating a property
  • The 5% rate will continue for supplies of the remaining ESMs made to housing associations, installations in relevant residential buildings and to “qualifying persons” aged over 60 or in receipt of certain benefits
  • The 5% relief will apply to the installation service only (not the cost of materials) for other residential installations where the cost of materials exceeds the cost of the installation services.  HMRC provide an example of a CHP boiler where the boiler might cost £4k and the installation £2k.  In this example the 5% rate would apply to the £2k installation cost but the boiler would be subject to 20% VAT

Speaking about the changes, Liz Maher, director for Centurion VAT Specialists, said: “If the proposal is successful, it could mean a big change to the renewable energy industry. It is

clear that suppliers and customers of solar panels, wind turbines and water turbines will be affected the most, as potential customers could be put off by the hike in VAT. “Businesses who supply and/or install ESMs need to be diligent now and have all the necessary documentation to ensure they are paying the right VAT on the transactions with their clients. This would mean obtaining extra documentation and added work. For some this will be daunting which is why we would advise people to speak to a VAT specialist to ensure they understand it fully.”

The proposed implementation date is 1st August 2016 and the consultation document states that the reduced rate will apply to any payments made or contracts signed prior to the implementation date.

HMRC has invited those who supply and/or install ESMs to provide commentary on the issue. Deadline for comments is 3 February 2016.

If you would like to discuss the implications of the proposed changes, please contact

Centurion on 01633 415390 or


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