Tag Archives: VAT-energy-saving-materials

Extension of VAT energy-saving materials relief

By Marcus Ward 22 January 2024

HMRC have published a new Policy Paper on the extension of energy-saving materials (ESMs).

Installations of ESMs in residential accommodation currently benefit from a temporary VAT zero rate until 31 March 2027, after which they revert to the reduced rate of VAT at 5%.

This measure extends the relief to installations of ESMs in buildings used solely for relevant charitable purposes, such as village halls or similar recreational facilities for a local community.

It also expands the scope of the relief to the following technologies:

electrical batteries that store electricity generated by certain ESMs and from the National Grid
water-source heat pumps
diverters that enable excess electricity from certain ESMs to be used within a building in which it is generated rather than exported to the grid

It also adds certain preparatory groundworks that are necessary for the installation of ground- and water-source heat pumps.

The changes apply from 1 February 2024

The policy objective is to incentivise the installation of ESMs across the UK to improve energy efficiency and reduce carbon emissions.

The measures are implemented by The Value Added Tax (Installation of Energy-Saving Materials) Order 2024.

Call for evidence: VAT energy saving materials relief

By Marcus Ward 9 May 2023

HMRC require feedback on improving energy efficiency and reducing carbon emissions.

The three key objectives are:

improving energy efficiency and reducing carbon emissions
cost effectiveness
alignment with broader VAT principles

HMRC is asking for responses by 31 May 2023, either via email or post.

VAT: The importance of due diligence. The 50 Five (UK) Limited case

By Marcus Ward 10 May 2022

Latest from the courts

In the First Tier Tribunal (FTT) case of 50 Five (UK) Limited the issue was the VAT rate applicable to energy saving materials. An additional twist was that there was a sale of the business between the tax point of the relevant supplies and HMRC’s assessment.

Background

The appeal was brought in the name of the Appellant in respect of assessments raised by HMRC against the company prior to the date on which it was purchased by the present owners. The present owners were not made aware of the assessment at the time of purchase. It had not been disclosed to them as part of the due diligence which was undertaken.

The Appellant’s business was that of supply and installation of heating and hot water systems. The customers were supplied with fully installed systems. The Appellant did not ask the customers to separately source the parts for such systems and then simply fit them. These supplies were treated as those of energy saving materials and the reduced rate of 5% was applied.

HMRC raised an assessment after taking the view that the supply should have properly been standard rated at 20%.

Decision

The FTT decided that legislation which permits the sale of energy saving materials at the reduced rate of VAT apply only where the supply of those materials is independent of an installation service. In this case, as the Appellant was the provider of the goods, and also the installer, the supply to the end customer was standard rated (a composite supply).

It was noted that this outcome was counter intuitive and the result does indeed seem unfair to the taxpayer, but as there was no reasonable prospect of the appeal succeeding, it was struck out. The assessment and interest was now payable by the new owners.

Commentary

An unfortunate outcome for the new owners, but it highlights three VAT issues:

always carry out appropriate due diligence when buying a business. VAT is often an issue and if the buyer had discovered the assessment, it could have either abandoned the purchase, or negotiated on the price
never assume that a lesser rate of VAT applies without carrying out appropriate research or seeking advice
always consider whether a supply is separate or composite. This is a difficult area of the tax as the amount of case law testifies

The only recourse the new owners have now is taking action against the sellers of the business.

VAT: Roof panels are not insulation. The Greenspace case

By Marcus Ward 2 December 2021

Latest from the courts

In the Upper Tribunal (UT) case of Greenspace Limited the issue was whether insulated roof panels were “energy-saving materials” per VAT Act 1994, sect 29A, Schedule 7A, group 2, items 1 and 2 and thus liable at the reduced rate of 5%. Or rather at the standard rate of 20% on the basis that they were a supply of a roof itself.

Background

The appellant supplied and installed roof panels for conservatories which comprised a layer of close-cell extruded polystyrene foam (Styrofoam) around 71mm thick. The Styrofoam was covered with a thin aluminium layer and a protective powder coating which are together around 2mm thick. The supplies were made to residential customers and the panels were fitted onto their pre-existing conservatory roofs. The Panels were slotted into place on the existing roof structure and Greenspace did not replace its customers’ existing roof framework when doing this; the struts and glazing bars that supported the previous glass or polycarbonate panels were left in place. Consequently, the Panels were not self-supporting and could only be used if the customer already had an existing conservatory roof structure.

The decision

The First-tier Tribunal (FTT) decided in 2020 that the panels were not “insulation for a roof” but were a new roof in their own right, and that the appellant’s supplies did not therefore qualify for the reduced rate of VAT (unlike insulation that could be separately attached to a roof, the panels actually formed the roof).

The UT dismissed the new appeal and found that the FTT had not been obliged to compare the roof after Greenspace had installed its panels to the original roof. The frame that was retained could not itself be described as a roof, and the provision of the Thermotec panels which made the conservatory weatherproof as well as insulating it could properly be categorised as the provision of a new roof.

One of Greenspace’s grounds of appeal was that the FTT decision was vitiated by the assumption that because the panels took the form of roof coverings, they were necessarily incapable of constituting “insulation for … roofs”. The appellant argued that as this was a flawed assumption (that Greenspace’s supplies “must” be treated as something more than insulation) the decision should be set aside. This contention was rejected by the UT judge.

Commentary

A fine distinction is often required to be made to establish the correct VAT treatment of a supply. In this case a degree of semantics was required to determine whether the panels were energy-saving materials (even when they certainly saved energy). On such small things turned the assessment of £2.6 million here. It always pays to double check VAT treatments rather than making assumptions.