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15 January 2016 | BSRIA Compliance

BSRIA concerned with consultation which may result in VAT hike for renewables

BSRIA is concerned with the outcome of a government consultation in which a proposed a 15 per cent VAT hike for domestic solar panels and other renewable energy products could happen after falling foul of EU rules. It closes on 3rd February, with the changes set to come into effect on 1st August, if approved.

The European Court of Justice (ECJ) ruled in June that Britain’s longstanding 5 per cent rate on the supply and installation of energy saving products breached its VAT Directive, which only allows energy saving products to use a reduced rate in social housing projects, or as part of a social policy.

To comply with the rules, HMRC has launched a consultation on proposals which will see products such as insulation and wood-fuelled boilers remain at the reduced 5 per cent rate, but will mean renewable energy products such as rooftop solar panels and wind turbines will have to move back to the standard 20 per cent rate.

The government will look to keep the 5 per cent rate by justifying it under another part of the VAT Directive, which allows a reduced tax rate for energy saving products which “renovate” a property and is currently used in France. In the consultation document, HMRC said items such as solar panels therefore have to be excluded as “their installation cannot properly be said to ‘renovate’ a property (rather, they simply serve to generate electricity)”.

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