Planned VAT changes ‘undermine decarbonisation, fuel poverty and industry strategies’

Sustainable energy organisations have called on HMRC to halt planned changes to the VAT regime that would raise the cost of installing more efficient and lower-carbon energy measures.

VAT applied to energy efficiency measures such as insulation and low carbon heating technologies like heat pumps, biomass boilers and micro combined heat and power, is at a reduced rate of 5%. Under the new rules proposed to be implemented this October, the reduced rate of VAT will no longer apply to wind or water turbines. For other measures such as insulation and low carbon heating the reduced rate would only remain available to those who meet a ‘social policy test’ (60 years or over and in receipt of benefits or a ‘relevant housing association’).

In a letter to minister Mel Stride MP the organisations argue that the change “would inflict significant damage on thousands of UK businesses, and would severely undermine the government’s ability to meet its legally-binding decarbonisation commitments.”

The Sustainable Energy Association also argued that the measure would have unintended consequences. For insulation and low carbon heating, whether VAT is raised to 20% from 5% depends on what proportion of the total cost of the job is capital and what is labour. The SEA says, ”this may disproportionally disadvantage people in areas where labour costs are lower, which tend to be less prosperous areas, and it could also lead to installers increasing charges for labour to ensure  that the labour cost is a bigger proportion of the overall cost.”

The organisations say the proposal, supposedly to align with EU requirements, is in contrast to the evolving view of VAT treatment in the EU and the UK’s Brexit plans.

Read the letter here