The Chartered Institute of Taxation (CIOT) is alerting home owners that the cost of VAT on most solar panel installations, and all wind and water turbines, will go up from the start of October.
The UK has a reduced rate of five per cent VAT for the installation of energy-saving materials in residential accommodation. However, the UK government is amending the scope of this after the Court of Justice of the European Union ruled that the scope of the reduced rate was too wide and that the standard rate of 20 per cent should apply in some cases.1 The UK government has consulted on the technical details of the changes.2 A related statutory instrument was passed by Parliament last month.3
There will be two changes that will impact on UK consumers. The amendments will remove the reduced rate on the materials element of the cost of installing energy saving materials in residential accommodation where the cost of the installed materials exceeds 60 per cent of the total cost of installation. In such circumstances, the 20 per cent standard rate of VAT will be chargeable on the materials, though the five per cent reduced rate will still be applicable to the installation services element of the cost. Further, wind and water turbines have been removed from the list of goods that are deemed energy saving materials, again increasing the VAT chargeable on those items to the 20 per cent rate.
However, the EU VAT rules allow the reduced rate of VAT to continue to apply to the installation of energy saving materials, including the materials themselves, whatever the cost of the materials, in housing where it is installed as part of social policy – for those meeting the relevant criteria.4
Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said:
“The cost of installing solar panels is usually 80-90 per cent materials and the remainder the cost of installation services. Therefore, if the buyer cannot meet the social policy conditions, from 1 October 2019, they will suffer a 15 per cent increase in the VAT on the panels themselves, unless they have signed a contract for installation prior to that date. For an installation currently costing £6,000 - £7,000 including materials, the change in VAT rate will increase the price by approximately £700 -£800.”
Notes for editors
1. EC v UK: http://curia.europa.eu/juris/liste.jsf?language=en&num=C-161/14
2. The CIOT has responded to a HMRC consultation that sought views on draft legislation that amends the scope of the reduced rate for energy-saving materials to ensure consistency with EU law (link here). If there is a Brexit implementation period then, while the UK will no longer be an EU Member State, market access would continue on current terms and common rules would remain in place until the end of the period, meaning that business will trade on the same terms as now. For VAT and excise, this would effectively mean maintaining the status quo. While there may be flexibility in the future, during any implementation period the UK would need to adhere to EU VAT and excise rules, thus it is required to comply with the CJEU judgment.
3. Value Added Tax (Reduced Rate) (Energy-saving Materials) Order 2019 – link here.
4. The social policy criteria include:
Those 60 or over
Those in receipt of specified benefits
Relevant housing associations
Relevant residential dwellings
Para 14.6 of Notice 708 refers.
Para 6.2 defines a ‘relevant housing association’.
The EU VAT social policy currently does not include environmental inducements.
5. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Contact: Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk