Measure
The government has announced a number of measures that will reduce the amount of VAT payable on supplies of installed Energy Saving Materials (ESM).
Households in Great Britain that install ESM on or after 1 April 2022. The measure does not apply to installations at commercial/non-domestic properties.
Under the Northern Ireland Protocol, the position in Northern Ireland will remain unchanged, though the Northern Ireland Executive will receive a Barnett share of the value of the relief until it can be introduced UK-wide.
The measures will take effect from 1 April 2022.
Currently, VAT at the standard rate (20%) is payable on the supply of services of installing ESM in residential properties, including the ESM installed, unless one of several restrictive conditions are met, or if the open market value of the ESM does not exceed 60% of the total cost of the supply to the recipient.
Only if one of these criteria are met, does VAT apply at the reduced rate (5%) to the supply of services of installing ESM and the ESM installed.
These restrictions, which amended and limited the UK’s application of the reduced rate, were brought into effect in 2019, following infraction proceedings brought by the European Commission against the UK (whilst it was a member of the European Union).
Today's announcement has three elements:
1. The conditions brought into effect in 2019 will be removed, meaning that all supplies of installed ESM at residential properties should now benefit from VAT relief.
2. Installed ESM will be subject to the zero rate of VAT for a time limited period from 1 April 2022 to 31 March 2027.
3. Wind and water turbines will be recognised in UK legislation as qualifying ESM eligible for VAT relief when installed.
The measure should reduce the VAT burden borne by households installing ESM and is a welcome development in line with the wider net zero agenda.