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Changes to the reduced rate of VAT for Energy Saving Materials

The UK was infracted by the European Commission on its application of the reduced rate of VAT on energy saving materials (ESMs) and subsequently lost its case in the Court of Justice of the European Union. The UK is required to amend the UK legislation that makes provision for the reduced rate for ESMs.

Objectives of the consultation

This consultation looked at proposed changes to the reduced rate of VAT for the installation of energy saving materials in compliance with a decision by the European Court of Justice. The HM Revenue & Custom sought comments as to whether or not the proposed legislation would achieve its objective and whether the proposed implementation date was likely to cause any problems. The consultation closed on 3 February 2016.

Supporting papers

To download the consultation document and read the overview of draft legislation, please follow the links below.

CIBSE response

CIBSE worked with a number of organisations, which formed a Coalition, and contributed to the collective response.

  • The Coalition welcomes the fact that the Government sought to use the potential of the legislation to support energy efficiency measures and to ensure that most of technologies currently covered by reduced rate will continue to benefit. However, the Coalition considers that the proposals are wrong to exclude solar panels from the relief and believes that both building-integrated solar PV and solar thermal should attract the reduced rate irrespective of social policy test, but subject to similar provisions in respect of whether the material make up <50% of the cost.

  • The Coalition believes that it is important that the detailed rules for reduced rates deliver the intended outcome in respect of who benefits from the installation of energy efficiency and low carbon energy products. Provision should be made within the legislation to ensure that reduced VAT rates can be applied when the end user is considered a 'qualifying person' as set out in Note 6 of Group 3 of Schedule 7A VATA.

  • Further thought needs to be given to how easily the social policy tests will be able to be applied in practice as the industry at the moment may not be well enough organised to take on this additional role within a short timescale. The complexity of operation means there will likely be further costs associated with the scheme. HMRC should produce clear guidance in order to reduce difficulties associated with complex regulation.

To read the full Coalition response, please follow the link below.