VAT increase for residential solar wind and water power due soon

VAT increase for residential solar wind and water power due soon

If you have been thinking of installing solar panels or other residential scale renewable energy equipment at your home then it would be worth getting on with it this summer.


The Chartered Institute of Taxation (CIOT) is alerting home owners that the cost of VAT on most solar panel installations, and all wind and water turbines, will go up from the start of October.


The UK has a reduced rate of five per cent VAT for the installation of energy-saving materials in residential accommodation. However, the UK government is amending the scope of this after the Court of Justice of the European Union ruled that the scope of the reduced rate was too wide and that the standard rate of 20 per cent should apply in some cases. The UK government has consulted on the technical details of the changes. A related statutory instrument was passed by Parliament recently.


There will be two changes that will impact on UK consumers. The amendments will remove the reduced rate on the materials element of the cost of installing energy-saving materials in residential accommodation where the cost of the installed materials exceeds 60 per cent of the total cost of installation. In such circumstances, the 20 per cent standard rate of VAT will be chargeable on the materials, though the five per cent reduced rate will still be applicable to the installation services element of the cost. Further, wind and water turbines have been removed from the list of goods that are deemed energy-saving materials, again increasing the VAT chargeable on those items to the 20 per cent rate.


However, the EU VAT rules allow the reduced rate of VAT to continue to apply to the installation of energy-saving materials, including the materials themselves, whatever the cost of the materials, in housing where it is installed as part of social policy – for those meeting the relevant criteria.


Alan McLintock, Chair of CIOT’s Indirect Taxes Sub-committee, said: “The cost of installing solar panels is usually 80-90 per cent materials and the remainder the cost of installation services. Therefore, if the buyer cannot meet the social policy conditions, from 1 October 2019, they will suffer a 15 per cent increase in the VAT on the panels themselves, unless they have signed a contract for installation prior to that date. For an installation currently costing £6,000 – £7,000 including materials, the change in VAT rate will increase the price by approximately £700 -£800.”


There is a thread on the Green Building Forum where these changes are currently being discussed.



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