One of the areas that Sadiq Khan has identified as part of London Climate Action Week is a renewed focus on 'clean energy and energy efficiency’. It is therefore with some sense of irony that we are reporting on VAT changes that may lead to increases in the cost of the installation of energy saving materials to some consumers. The good news is that, if you act quickly, there is still time to benefit from VAT relief on this type of work.
In 2001 UK VAT law was amended so that instead of paying VAT at 20 per cent on the installation of energy saving materials a reduced rate of 5 per cent was applicable. This was part of the government’s environment strategy and was intended to reduce the cost and increase the use of a variety of products that would ultimately reduce the UK’s carbon footprint. Four year ago, the European courts ruled that the VAT relief offered by the government on the installation of energy saving materials and renewable energy generation devices (like wind turbines) was too generous.
Since 2015, HMRC has been consulting on how to amend the UK VAT law to reflect this decision (which the UK is required to implement). The consultation period for the proposed legislation has now closed and it currently appears that, from 1 October 2019, the cost of installing energy-saving materials for some consumers will increase as businesses are forced to pass on the cost of a VAT rate increase. The increase could also affect consumers seeking to generate their own electricity by installing water or wind turbines.
The advice at this point is that if you plan to reduce your household’s impact on the environment, now is the time to act.