Reduced VAT rates for installation of energy saving materials likely to change

In order to bring the UK into line with EU law, HM Revenue & Customs (HMRC) is currently consulting on changes to the reduced 5% VAT rate that has been available for the installation of energy saving materials in residential accommodation. This is of interest to the rural sector as changes will apply to rural housing development, refurbishment and upgrades, or conversion of farm buildings for residential use.

The main changes proposed are that the reduced rate will be:

• Removed across the board for the installation of wind and water turbines.
• Retained where recipients are aged 60 or over, or are in receipt of certain benefits, and for housing association developments.

Finally, the reduced rate will be maintained for all other residential development where the cost of the materials does not exceed 60% of the total cost of installation.

Sean McGinness, a partner and VAT specialist at Saffery Champness, comments:

“Currently, the law is in draft and HMRC is consulting on the changes, although as they have been proposed following a court ruling in June 2015, they will almost certainly take effect from 1 October 2019.

“We can expect increased costs for some, who will now have to pay the standard rate of VAT for the installation of energy saving materials, including biomass boilers and solar panels, rather than the current reduced rate of 5%.

“Such changes, particularly for those specialising in or planning such developments, should be addressed now in budgets for work taking place after October. The draft guidance from HMRC indicates that current rules will apply if payment is made or a contract entered into before 1 October. It is hoped that this remains in the final guidance following consultation.”