APHC have learned that the Government is to likely to withdraw the 5% VAT rate for Energy Saving materials (ESM) such as solar thermal panels, biomass boilers and heating controls, installed in buildings used for a relevant charitable purpose in August 2013.
The announcement made during the budget 2012, comes after the EU called for the 5% VAT rate to be scrapped altogether, as it considers the rates to be ‘beyond the scope’ of the VAT directive. The EU has since commenced infringement action against the UK on the basis that the reduced rate is not allowed in EU Law and the UK is in breach of its obligations as a member of the EU.
The Government’s view is that the reduced rate for the installation of ESM in residential accommodation is consistent with the VAT Directive and they will be defending this point. The Government has however identified that it has little option but to progress with the change to VAT rates for ESM for charitable purposes and has announced the likely change from August 2013 accordingly.
John Thompson, APHC Chief Executive commented: “It is unfortunate that the Government has decided to withdraw the reduced rate for ESM installed in buildings used for a charitable purpose, at this time. There is already a great deal of confusion in the industry surrounding the use of the 5% VAT rate, now we have further confusion and complication around the application of the reduced rates. These buildings used for charitable purposes (such as village halls etc) are often in a poor state of repair and any remedial or improvement works would benefit greatly from a VAT reduction. The Government has however pointed out that the reduced 5% rate will still be available until 1st August 2013 so I would encourage installers to ensure any claims for ESM installations or installation work are complete well before August 2013. We remain concerned that the Government may have to change its stance on the application of a reduced rate of VAT for ESM in residential properties as part of the EU action. This has the potential to significantly impact on the current range of green initiatives applicable to dwellings.”
HMRC have called upon installers of ESM and businesses in the construction sector who will be affected by this issue to have their say on the changes to the 5% VAT rate for ESM in buildings with charitable purpose. Read the brief document here: http://www.hmrc.gov.uk/briefs/vat/brief2612.htm