Legislation has been passed to reduce the scope of the 5% VAT relief for “energy saving materials” (including items such as draught strips, solar panels, central heating system controls, ground source heat pumps and wind turbines) from 1 October 2019. Services relating to the supply and installation of such items to dwellings or “relevant residential purpose” buildings, are subject to the 5% VAT rate. The EU ruled in 2015 that the UK’s VAT relief was too wide and should be restricted.
The draft legislation would remove the 5% rate for the installation of wind and water turbines but protects relief for elderly people (over 60) or to housing associations or where the residential accommodation is a building or part of a building used solely for a relevant residential purpose.
Otherwise the reduced rate will be available for installations ins residential accommodation provided that the value of the energy-saving materials does not exceed 60% of the total value of the supply of installing them. If the value of the energy-saving materials exceeds 60%, then only the labour cost element will qualify for the reduced rate (with the supply of the materials being standard rated).
The changes will negatively impact some sectors, but a good deal of the 5% reduced rate relief has been preserved and the impact on charities or voluntary bodies with residential properties is expected to be limited.