Zero-rate on energy-saving materials

In the Spring Statement, the Chancellor announced that VAT on Energy-Saving Materials (“ESM”) – including solar panels, heat pumps and roof insulation – will be cut from 5% to 0%. The zero-rate will be available for five years, beginning 1 April 2022 and will revert to the 5% reduced VAT rate from 1 April 2027.

Revised relief

This change expands the VAT relief available for ESM for domestic installations and reverses a previous ruling from the EU Court of Justice 2019, which required the UK to restrict the eligibility and application of the relief. Following the UK’s departure from the EU, the government has been able to widen the scope of relief for installations in domestic properties and relevant residential purpose buildings, such as care homes.

The new measure permanently removes the previous ‘social policy conditions’ and the 60% test, for which businesses were required to consider the VAT liability of ESM installations.

It was also announced that the Government will bring wind and water turbines back into the scope of the relief.

Purpose of revision

The measure is intended to incentivise the take-up of ESM in line with the Government’s net zero objectives. Unless the government introduces further legislation to extend the period of the zero-rate, the installation of ESM will revert back to the 5% reduced rate from 1 April 2027.

If you are considering installing any energy-saving materials and want advice on how to plan your project to reduce any VAT charges, get in touch with our VAT team at VAT@ct.me.

Author: Kerry Annand, CT: VAT