Reduced rate VAT – Warning – EU Judgement of 4 June 2015
An EU court ruling of 4 June 2015 states that the UK cannot apply reduced rate VAT to the supply and installation of energy savings materials – except in the case of social housing.
Therefore, although we believe the information below is correct now, it is likely to change, or be adapted, sometime in the future. Therefore for any current domestic installations that comply with the information below it is likely that you will want to complete the installation quickly to ensure that you are free to charge your customers at the current 5% rate.
For future installations where your invoice will be to someone who suffers VAT (and cannot reclaim it) it will be appropriate to notify them that there is a risk that the rate may rise from 5% to the standard rate of 20%. It seems unlikely that there will be any change to UK law before the 2016 Budget at the earliest, and that for any changes that do occur the legislation is unlikely to apply until after any change is announced. So there is an opportunity to encourage clients to install before then.
Reduced rate VAT – 5% – applies on installation of Ground Source Heat Pumps
Installation of any of the following energy saving materials in residential accommodation qualifies for the lower rate of VAT:
- controls for central heating and hot water systems
- draught insulation (eg around windows and doors)
- insulation on walls, floors, ceilings, lofts, etc
- solar panels
- ground-source heat pumps (including ancillary supply like ground works)
- air-source heat pumps
- wind turbines
- water turbines
- micro combined heat and power units
- wood-fuelled boilers
The lower rate of VAT applies if the energy saving materials are installed and the work is done on residential accommodation.
The lower rate applies on any necessary extra work that needs to be done as part of the installation. For the installation of a ground source heat pump system this includes the heat pump, the ground loop, system controls and any other installation ancillary to the supply. Because a ground source heat pump installation provides heat at a lower temperature than a fossil fuel boiler there will usually be a need to increase the number or size of the radiators as part of the ancillary work or to install underfloor heating. See Heat Emitter Guide.
- the reduced rate does not apply if you buy materials directly: it only applies if you buy an installation (which includes the supply of materials)
- the reduced rate only applies for an installation of these items (including ancillary items) to residential accommodation
- if the installation is part of a wider supply, such as a new extension, then the reduced rate does not apply. This means that the reduced rate will only apply if the installation of energy saving materials is the dominant part of the supply.
- if the installation is in a new building then the supply is zero-rated for VAT.
This pages summarises advice given in HMRC VAT Notice 708/6 Energy-saving materials.
RHI is available on installation of Ground Source Heat Pump Systems
Owners acquiring new GSHP systems are eligible to receive Renewable Heat Incentive for the use of ground source energy and for heat generated by solar thermal systems for domestic hot water.