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VAT Alert: Energy Saving Materials to Change from 5% to 20% VAT Rate


Date: 19 June 2015
Category: VAT

The last Labour government introduced a 5% VAT rate on the supply and installation of energy saving materials for residential property. The European Commission (EC) disagreed with the decision to charge the reduced rate of VAT and instigated proceedings against the UK. The EC won and we are now waiting for HM Revenue and Customs (HMRC) to announce when the VAT rate has to rise to 20%.

The materials involved are, for example:
Insulation for walls floors and ceilings
Draught stripping for windows and doors
Central heating controls
Hot water system controls
Solar and PV panels
Wind and water turbines
Ground and air source heat pumps
Combined heat and power units
Boilers using wood, straw or vegetal matter

It is now expected that HMRC will issue guidance about charging the ‘correct’ VAT rate in future (it is unlikely to apply a retrospective date). This will mean suppliers will have to either increase their prices, drop their expected profit margin, or a combination of both! Either way HMRC will expect 20% of the net charge for supplies to be paid to them on the suppliers’ VAT return from the chosen date.

The European Court of Justice (ECJ) reported that whilst the matter applies to normal residential properties, it does not affect supplies involving social housing. Supplies to these bodies will remain at 5% VAT.

Suppliers should begin reviewing their pricing structure and any advertising documentation, and may want to consider a marketing push. HMRC may use the anti-forestalling legislation to ensure suppliers don’t issue invoices prior to any rate change, declare 5% VAT on payments received and go on to deliver the service after the set date.
Please contact Liz Hill or Rob Geary if you need information about the date of implementation, details about anti-forestalling legislation or any other VAT issues.
 
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