solar panels

Changes to VAT treatment of solar panels

Adam Cutler, Director, VAT
solar panels
Changes to the VAT treatment of solar panels and other energy saving materials are not as extensive as first feared.

Following infraction proceedings by the European Commission against the UK in 2015, HMRC published a consultation on proposed changes to the VAT treatment of energy saving materials. With the subsequent vote to leave the EU and a relaxation of EU VAT rules in this area, it had been hoped that these changes would never be implemented. However, on 8 April 2019 HMRC published revised draft legislation. Some restrictions are still proposed, but these do not go as far as the 2015 proposals.

Current rules and proposed changes

Currently, the installation of certain energy saving materials into any residential accommodation is subject to the reduced VAT rate of 5%. With effect from 1 October 2019, if this draft legislation is implemented, this will be more restricted.

Installation services on their own will remain subject to 5% VAT.

Installation services together with qualifying materials will only be subject to 5% VAT in three situations.

  1. The customer is over 60 or in receipt of certain benefits
  2. The customer is a registered housing association
  3. The building in question is a care home, hall of residence, or other ‘relevant residential purposes’ building.

If the customer or building does not qualify under the above heading, the goods and services can still be subject to 5% VAT provided that the goods make up no more than 60% of the total charge. If they do, then 5% VAT can only apply to the services element.

Wind and water turbines are being removed from the list of qualifying items. However, solar panels, ground and air source heat pumps, and micro heat and power units remain on the list.

Who will be affected?

Most housing associations, schools, universities, and care home operators should not be affected by the changes. Many have long-term programmes to install solar panels on their properties and will welcome this certainty that their costs will not rise.

It is disappointing that this has not been extended to all non-profit property owners and we have made this recommendation to HMRC.

Other property owners undertaking energy saving works such as insulation, draught stripping and upgrading heating controls should still incur 5% VAT as these works are fairly labour-intensive.

Home owners may want to act now

However, the costs to home owners of installing solar panels seems likely to rise. If you are considering installing solar panels on your home, you may wish to bring forward these plans before the VAT rate changes.

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How we can help

To discuss these issues and how they apply to you or your organisation, please contact Adam Cutler, Director, VAT.

Contact us

Adam Cutler
Adam Cutler
Director, VAT and Customs Duty Services