Currently homeowners only pay 5% VAT when installing a solar PV or solar thermal hot water heating system as opposed to the standard rate of 20% VAT on other goods and services. However the Government has today put forward a proposal to increase this to 20%.
This would add £900 to the cost of a typical 4kW solar installation on someone’s home, which is currently around £6,400.
The HMRC consultation stems from an EU court ruling that the UK’s current reduced rate of VAT for solar and other energy saving products violates the EU’s VAT directive as they cannot be considered a ‘renovation to a property’. However it is only solar, along with wind and hydropower, that HMRC is proposing to completely remove from the 5% VAT level.
Mike Landy, Head of Policy at the Solar Trade Association commented: “This requires urgent action from both the UK Government in London and the European Commission in Brussels.
“Instead of just accepting the EU ruling HMRC needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the Feed-in Tariff for solar.
“And we need the European Commission to move quickly to amend EU law so that all renewables and energy efficiency products are guaranteed a reduced rate of VAT. Brussels needs to remember that the EU doesn’t have many practical tools within its power to promote renewables, but rules on VAT is one of them.”
The proposal is for this change to come into force on 1 August 2016.
The final decision on Feed-in Tariffs for solar is expected later this year – and possibly next week – although it could also be postponed to January 2016.
The Department for Energy and Climate Change is currently proposing to cut the tariff for domestic solar by 87% from 12p/kWh to 1.63p/kWh. The Solar Trade Association has been calling for 8p/kWh in its £1 Emergency solar rescue plan. However initial analysis by the Solar Trade Association suggests that taking this proposed hike in VAT into account, Feed-in Tariffs would need to be raised back up to 12p/kWh to get the same payback on investment for homeowners.
This news on VAT follows the announcement over the weekend that EU price controls and import tariffs on solar panels imported from China are to continue into the near future, accounting for about £380 of the cost of a typical domestic install. The Solar Trade Association is calling on the European Commission to drop the price controls, which it says are artificially and unnecessarily inflating the price of solar PV in the UK.