VAT News

Energy Saving Materials


Back in June 2015, the European Court ruled that the UK reduced VAT rate for installation of certain energy saving materials (ESMs) was too widely drawn.  In applying the relief, the UK had relied on European VAT Directive 2006/112 which covers “provision, construction, renovation and alteration of housing, as part of a social policy”.

The Court found that the UK had applied the relief too widely by failing to restrict the benefit to certain social groups or those with social needs.  Further, the relief covered installation of items that did not constitute “provision, construction, renovation and alteration of housing.”

HMRC have now issued a consultation document to seek views on proposed changes to the legislation.  The proposed implementation date is 1 August 2016.

The main changes are

  • Solar panels, wind turbines and water turbines will be removed from the list of ESMs as these are seen as means of generating electricity rather than renovation of a property.
  • The 5% rate will continue for supplies of the remaining ESMs made to housing associations, installations in relevant residential buildings and to “qualifying persons” aged over 60 or in receipt of certain benefits
  • The 5% relief will apply to the installation service only (not the cost of materials) for other residential installations where the cost of materials exceeds the cost of the installation services.  HMRC provide an example of a CHP boiler where the boiler might cost £4k and the installation £2k.  In this example the 5% rate would apply to the £2k installation cost but the boiler would be subject to 20% VAT.

As currently drafted, the changes will clearly affect suppliers of solar panels and their potential customers.  For other ESMs, suppliers will in some cases need to know the status of their customers where the cost of materials exceeds the costs of installation.  Where the relief relies on the customer being a qualifying person, installers would need to obtain evidence such as a copy birth certificate or benefit statement.

The consultation document states that the reduced rate will apply to any payments made or contracts signed prior to 1 August 2016.

The document can be viewed HERE.

HMRC have invited comments before 3 February 2016.

If you would like to discuss the implications of the proposed changes, please contact your usual contact at Centurion or Julie Rawlinson-Smith on 07805 134091 or

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