HMRC IS proposing to change the way that the reduced-rate of VAT is applied to solar, as well as other household renewable technologies.
Currently, the 5% reduced rate of VAT applies to installations of solar and combined installations of solar and storage as solar is listed under the energy-saving materials and heating equipment list.
If implemented, HMRC’s proposals will lead to the cost of an installation being charged at the full 20% VAT rate but only in circumstances where the cost of the materials exceeds 60% of the total cost of the installation.
According to the Solar Trade Association (STA), most solar-only schemes will comfortably fall below the 60% threshold. However, the STA believe the most cost-effective collective purchase schemes, as well as more premium schemes such as those combined with more complex ‘smart’ technologies are at risk.
Smart power associations take action
Associations representing the smart power industry have penned a joint letter to Finance Secretary, Mel Stride, and Energy Minister, Claire Perry, calling for the proposals to be scrapped. Failing this, the letter calls for the threshold for material costs to be raised to 85%, which according to the STA, would ease the impact on the UK’s nascent battery storage and other smart power technology markets.
STA Director of Advocacy and New Markets Léonie Greene said: “We are deeply unhappy with these VAT proposals which fly in the face of the recently declared Climate Emergency.
“While the bulk of solar-only installations will not be affected, collective purchase schemes and combined solar and battery storage schemes may be put at significant risk. This is particularly perverse when the Government is backing a smart energy system, which would see homes with storage helping to support the grid, saving the UK vast amounts of carbon and money.
“We are working with MPs from all parties to pressure BEIS and HMRC to see sense. At a time when the urgency of tackling climate change and decarbonising our economy is unquestionable, and people want to take action, government must bring down barriers to climate action, not put more up.”
These proposals have been published four years after the European Commission’s ruling on how the UK applies reduced-rate VAT. Committee on Climate Change CEO, Chris Stark, stated that the VAT proposals would hinder the UK’s ability to reach Net Zero. Speaking at a BEIS Select Committee evidence session, he said: “We will need to throw everything at this challenge, including onshore wind and solar for that matter. Anything that makes it harder is clearly not in line with the net zero challenge over all.”