The reduced rate of VAT at 5% for the installation of certain energy saving materials (ESMs) in residential accommodation was first introduced in 1998 and the provision has been extended and revised over the subsequent years. Details of the current treatment can be found in Notice 708/6 https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086.
The latest amendments in October 2019 were prompted by infraction proceedings undertaken against the UK by the European Commission in 2015, concerning the UK application of the reduced rate. In those pre-Brexit times, the UK was required to comply with the CJEU’s judgment and amended the UK legislation that makes provision for the reduced rate for ESMs.
The revised legislation took effect from 1 October 2019. Wind and water turbines were removed from the list of qualifying items. Solar panels, ground and air source heat pumps, and micro heat and power units remain qualifying if the conditions outlined below are met.
Installation services on their own are subject to the 5% reduced rate. However, installation services together with listed materials qualify for 5% VAT in the following circumstances:
- the customer is over 60 or in receipt of certain benefits;
- the customer is a registered housing association, or
- the building is a ‘relevant residential’ building, such as a care home.
The reduced rate also applies to supplies made to persons living in dwellings who are not qualifying persons, but where the value of the materials exceeds 60% of the total value of supplying and installing the goods, the reduced rate is restricted to the labour element of the supply, and the materials or hardware are standard-rated.
It remains to be seen whether the relief will be revised again especially given the current high profile of the green agenda.
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