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VAT Changes are Coming on Energy-Saving Materials

| Duncan & Toplis | 26 September 2019

Whether you're a builder, plumber or engineer, installers of energy-saving materials need to be aware of a range of upcoming VAT changes on insulation, solar panels and many other materials that will take effect from 1st October 2019.

The reduced rate will no longer be available for the installation of wind or water turbines in any circumstances.

The reduced rate will remain fully available when certain social policy conditions are satisfied in relation to other energy saving installations. The guidance in relation to social policy conditions remains unchanged.

Currently the installation of energy-saving materials in, or in the area of land attached to residential accommodation, is reduced-rated for VAT. This means installers of energy-saving materials charge their customers at a VAT rate of 5%.

However, from the beginning of October, installers of energy-saving materials will have to apply the 60% test in order to determine how much of their supply they can charge 5% VAT on where social policy conditions are not met.

For VAT purposes, energy-saving materials include:

  • Controls for central heating and hot water systems
  • Draught stripping
  • Insulation
  • Solar panels
  • Ground source heat pumps
  • Air source heat pumps
  • Micro combined heat and power units
  • Wood-fuelled boilers.

Applying the 60% test

The installers must first establish the price that it paid to purchase the materials used in the installation. Then, they must calculate this as a percentage of the total value of the supply to its customers.

The materials that must be included are all of the goods supplied to the customer as part of the installation which remain in place once the job has been completed.

Where the cost of the materials to the business exceeds 60% of the total value of the supply, the business will need to separate out the value of the materials supplied to the customer and charge VAT at the standard rate on those materials. The labour element of the supply can be charged at the reduced rate. Where the cost of the materials to the business are 60% or less of the total value of the supply then the business can charge the reduced rate of 5% on the total supply.

This change will impact businesses that supply and install energy-saving materials into residential accommodation.

If you're unsure about the upcoming changes, our tax experts are on hand to provide advice and support. Contact us today with your queries.

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