Q&A: VAT on energy saving materials

In our regular Q&A series from Croner Taxwise, VAT adviser, Arti Sonpal explains the VAT implications around installing electric car charging points and solar panels to a residential property

Q. My client is an electrician and has a contract to supply and install an electric car charging point and solar panels with a battery to a residential property.

What is the liability of each of these supplies?

Where scaffolding has been hired for the purpose of installing the solar panels should this be included in the purchase price?

A. VAT Act 1994 Schedule 7A Group 2 permits the reduced rate of VAT to apply to the installation of Energy Saving Materials in residential accommodation. Those materials are specified in the legislation and are:

  • controls for central heating and hot water systems;
  • draught stripping;
  • insulation;
  • solar panels;
  • ground source heat pumps;
  • air source heat pumps;
  • micro combined heat and power units; and
  • wood fuelled boilers.

Your client’s supply of an electric charging point is not classed as an energy saving material and therefore the supply of materials and installation service for this will be standard rated. Solar panels, however, are energy saving materials.

Changes came into effect from 1 October 2019 which only allow the installation of energy saving materials and the labour to be reduced rate provided any one of the social policy conditions is satisfied OR the 60% threshold is not exceeded.

Social Policy Conditions

The first condition is that the supply of the installation is to a ‘qualifying person’ in the qualifying person’s sole or main residence. A qualifying person is defined in legislation as a person who is aged 60 or over or is in receipt of one of the benefits set out in VAT Notice 708/6 section 2.3

The second condition is that the supply of the installation is to a relevant housing association as defined in legislation which includes a registered social landlord and registered housing association.

The third condition is where the residential accommodation is a building or part of a building used solely for ‘relevant residential purpose’ as defined in legislation. This includes children’s homes, care homes and accommodation for the armed forces.

Where social policy conditions are not met the 60% test is necessary to be carried out.

The 60% Test

The 60% test is to be carried out by the provider of the installation. The first step is to establish the price paid for the purchase of the materials (excluding VAT) and then calculate the percentage this forms of the total value of the supply (excluding VAT) to the customer.

Where tools and equipment are used by the installer to carry out the installation such as a ladder or scaffolding these costs do not count as materials for the purpose of the 60% test; the materials included are those which remain in place when the installation is complete. Details can be found in VENSAV3150.

Where the cost of materials purchased is 61% or more (using normal rounding principles) of the VAT exclusive value of the supply the 60% threshold is exceeded, and the value of the supply will need to be apportioned between materials and labour. The materials will be standard rated, and the labour will continue to benefit from the reduce rate.

Where energy saving materials are supplied without installation the supply will be standard rated.

Where only installation services of energy saving materials are supplied and no materials the supply is reduced rated.

Further guidance on Energy saving Materials can be found in VAT Notice 708/6 & in HMRC’s Internal Guidance Manual VENSAV300

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