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As of the 1st of October 2019, the UK Government will be implementing a VAT increase of 15% on energy-saving materials (ESM).
The legislation enacting these changes was passed on the 25th of June this year which was the same day the House of Commons passed legislation to commit the country to net-zero carbon emissions by 2050, all amidst a climate emergency declared only a month before.
This means a new VAT rate of 20% on solar and storage affecting installers and end-users and where the cost of materials is above 60% of total install cost.
Most affected will be combined solar and storage installations, collective purchase schemes and high-end solar and smart energy products.
Solar photovoltaic panels with cabling, control panel and inverters are all included into the new legislation and will be affected. This also includes battery storage when installed with a solar system. Retro-fitting battery storage remains at 20% VAT.
A key factor relating to criteria of the higher rate is the 60% test. The business that provides the installation must calculate the VAT to charge. This is done by calculating the cost of the materials (excl.VAT) and determining if the cost is less or greater than 60% of the total cost of the installation (excl.VAT).
An example from the official government website; “For example, a business carries out an installation of solar panels combined with a battery. It pays £5,000 for the solar panels and battery (excluding VAT) and charges its customer £7,500 (excluding VAT) for the installation. Since the cost of the materials to the business is 67% of the value of the supply the business makes to its customer, the 60% threshold is exceeded. This means that the business will need to separately identify the value of the materials supplied to its customer and charge VAT at the standard rate on the supply of those materials. The labour element of the supply will continue to qualify for the reduced rate.”
There are also Social Policy Conditions that, if met, mean the reduced rate of VAT can be applied. The conditions are as follows:
- The recipient being a qualifying person (aged 60 or over or in receipt of certain benefits)
Benefits include:
- Child Tax Credit (other than the family element)
- Council Tax Benefit
- Disability Living Allowance
- Disablement Pension
- Housing Benefit
- Income-based Jobseeker’s Allowance
- Income Support
- War Disablement Pension
- Working Tax Credit
- A relevant housing association (e.g. social housing)
- A relevant residential purpose (e.g. children’s homes, care homes, accommodation for armed forces and student accommodation)
An HMRC spokesperson said; “The government is proposing changes that retain as much of the VAT relief as possible for energy-saving materials while ensuring compliance with EU law.”
The Renewable Energy Association chief executive Nina Skorupska said;
“The VAT proposals will create a barrier to British homes & businesses who are seeking to take action on climate change and reduce their bills by installing solar with battery storage. With 84% of the public supporting renewable energy and a further 80% concerned about climate change, the Government should be doing all it can to install these technologies rather than enacting barriers.”
More detailed information can be found here