Renewable energy: HMRC reveals proposal to increase VAT rate to 20%

HMRC have recently confirmed they are going ahead with higher VAT rates for installations of a number of renewable and sustainable energy sources, including biomass boilers and solar panels.

The hike in VAT will see rates rise from 5% to 20%, which essentially eliminates the discount that had been previously applied to these products in an effort to reduce carbon emissions.

Solar PV had been threatened with a higher rate of VAT in 2016, when an increase to 20% was announced in the Budget, but later withdrawn from the Finance Bill as some MPS had voiced concerns over the plans.

Assuming that the government do not back down this time, the changes are set to come in from 1st October 2019. There will be some exemptions from the new legislation.  The new rules will only apply when the cost of the materials exceeds 60% of the total cost of the installation, which means that many straightforward solar-only schemes will not be affected. 

In addition to this the 5% rate of VAT will still be available for installations to residential properties for those aged 60 or over, for those receiving certain benefits and for housing associations.

The proposed VAT hike has received a negative response, as the increase will make it harder for those wanting to reduce their carbon footprint, and the plans have been contrasted with the cost of VAT on coal which is still at a reduced rate of 5%. The Renewable Energy Association (REA) have said that the increase will risk putting the UK market at a ‘strategic disadvantage’ and that the change risks setting back the UK decarbonisation of homes and businesses in the UK by a number of years.’

HMRC have commented on the hike, saying that ‘The government is proposing changes which would keep as much tax relief as possible available for energy saving materials while ensuring UK rules are in line with EU law.’  It has been pointed out that we may not even be in the EU on the date the new rules come into effect.
 

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