Changes to VAT treatment of energy saving materials from 1 October 2019

Changes are being introduced from 1 October 2019 which will result in the supply of certain Energy Saving Materials (ESMs) being subject to VAT at 20% rather than 5%. The changes are being made to ensure that the UK complies with EU VAT legislation.

Position prior to 1 October 2019

Currently the supply and installation of certain ESMs (eg solar panels, heat pumps, insulation) in residential accommodation benefit from the reduced 5% rate of VAT.

Position from 1 October 2019

From 1 October 2019, the installation of all wind and water turbines will become subject to VAT at 20%.

The supply of ESMs to residential accommodation will also become subject to VAT at 20% if the value of the materials exceeds 60% of the total amount charged to the customer. Note that the installation element of the price will still qualify for the reduced 5% rate of VAT.

By way of example, if solar panels are being installed and the total cost charged to the customer is £2,000 plus VAT (made up of £1,500 for the solar panels and £500 for the installation service). The £1,500 charge for the solar panels will be subject to VAT at 20% with the £500 installation service subject to VAT at 5%.

Note that the 5% VAT rate will continue to apply to both the supply and installation of ESMs, regardless of the value of the materials, in relation to:

  • the main residence of someone aged 60 or over or in receipt of certain benefits;
  • relevant housing associations; or
  • buildings used solely for a relevant residential purposes (e.g. certain care homes and student accommodation).

Next steps

Suppliers of ESMs should consider which of their products are likely to be affected by these changes and the potential impact on systems, invoicing and pricing. There are specific transitional rules in relation to contracts which are likely to span 1 October 2019.

To discuss how we can help, please get in touch with me, or a member of our VAT & Duty or Infrastructure & Renewable Energy teams.