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Changes to VAT reduced rate on energy-saving materials

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HMRC is consulting until 3 May 2019 on the draft VAT (Reduced Rate) (Energy-Saving Materials) Order 2019, which narrows the scope of the UK’s reduced VAT rate for installation of energy-saving materials in residential accommodation with effect from 1 October 2019.

The changes are needed to comply with the ruling of the CJEU in European Commission v United Kingdom [2015] STC 1767, that the reduced rate should be applied as part of social policy and targeted at social housing. The government first consulted on a version of the draft legislation in December 2015.

Under the proposed legislation, the whole supply will continue to qualify for the reduced rate where:

  • the customer is 60 or over, or in receipt of certain benefits, and the energy-saving materials are installed in their sole or main residence;
  • the supply is made to a relevant housing association;
  • the value of the installed energy-saving materials does not exceed 60% of the cost of the total supply to the customer. If the value of these materials exceeds 60%, only the labour cost will qualify for the reduced rate, with the materials standard rated.

The reduced rate will no longer apply to the installation of wind and water turbines.

The changes will affect supplies made on or after 1 October 2019, except where paid for before that date, or made pursuant to a contract entered into before that date.


Issue: 1439
Categories: News