The Government should use the Budget to announce the relaxation of VAT rules related to the provision of energy saving material when installed in residential property and extend the rules to include commercial buildings, says Alan Pearce, a Partner and VAT expert at the leading tax and advisory firm.
Alan said, “As the rules presently stand, the zero rate of VAT applies to the provision of energy-saving material, only where it is provided to residential property, and only where it constitutes a standalone contract for the ‘installation of the energy saving material.’
“Where energy saving materials are supplied as part of a wider building contract (e.g. a refurbishment or an extension to a residential building), the 20% VAT rate applies to the entire contract. There is no scope for apportionment, meaning that the energy saving equipment needs to be provided under a separate contract.”
He added, “If the Government were serious about supporting the construction industry, and incentivising businesses to become more energy efficient, it should allow energy saving material to be provided to residential (and commercial) property owners at the zero rate of VAT, even where the qualifying material is just one part of a wider service.”
Alan said, “To date, the Government (or more likely HMRC) has rejected this view on the basis it would mean too much complexity.
However, such a change would only follow the basic principles adopted elsewhere in the legislation for dealing with apportionment of works carried out to mixed residential and commercial properties, and when determining the extent of zero rating for disabled facilities.”
He added, “It would not be a big stretch to allow a similar method of apportionment for the installation of energy saving materials when supplied as part of a wider supply of construction service.
“Furthermore, relaxing the VAT rules at this time would go a long way in supporting landlords struggling with expensive refurbishment costs when bringing their properties up to the required standard to meet new EPC rules.”
