HMRC CONSULTATION ON CHANGES TO THE REDUCED RATE OF VAT
FOR ENERGY SAVING MATERIALS
February 2016
Westgate House
2a Prebend Street
London N1 8PT
020 7359 8000
[email protected]
VAT: Changes to the reduced rate of VAT for
Energy Saving Materials
Consultation Response
About the Association for the Conservation of Energy
The Association for the Conservation of Energy (ACE) was formed in 1981 by major companies active
within the energy conservation industry, in order to encourage a positive national awareness of the
needs for and benefits of energy conservation, to help establish a sensible and consistent national policy
and programme, and to increase investment in all appropriate energy-saving measures.
We welcome this opportunity to respond to the consultation on proposed changes to the 5% reduced
VAT rate for energy saving materials.
Background
In the summer of 2012, ACE took the lead in convening a broad coalition of interested organisations
who were concerned about the implications of the Reasoned Opinion sent by the European Commission
to the UK Government to the effect that its 5% reduced rate of VAT on energy saving materials went
beyond the scope of the 2006 European VAT Directive. Over subsequent years we have led the coalition
in:

encouraging the UK Government to respond robustly to the Commission in defence of its reduced
rate;
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HMRC CONSULTATION ON CHANGES TO THE REDUCED RATE OF VAT
FOR ENERGY SAVING MATERIALS
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February 2016
providing the Government with a detailed report setting out the reasons we believed that the UK’s
reduced rate did in fact form part of a social policy;
liaising closely with officials both before and after the CJEU judgment, setting out our view that the
UK Government should use the vires in both Category 10 and Category 10(a) of Annex III of the VAT
Directive to retain as much as possible of the reduced rate.
Consultation Questions
Question 1: Does the legislation as drafted achieve the objectives as
described in this document? If not, why not?
We very much welcome the fact that the Government proposes to use Category 10(a) in addition to
Category 10 to ensure that most of the technologies currently covered by the reduced rate will continue
to benefit. However, we do not believe that the current proposals entirely meet the stated objective to
‘retain as much of the relief as possible whilst ensuring that UK law is fully compliant with EU law’.
In particular, we believe that the proposals are wrong to exclude solar panels from the relief in all
circumstances.
There are reasonable and substantial grounds to consider solar thermal and solar PV in certain cases as
“renovation and repair of private dwellings”, as required by Category 10(a) – for example where
building-integrated solar PV is used as a roofing material, or where solar thermal is provided as part of
a heating system. In particular, solar thermal systems contribute towards the primary enjoyment of a
dwelling – that of a place providing shelter and warmth from the elements. Solar thermal provides
potable hot water and, where installed, is an integral part of a heating system. Consequently, if primary
space heating and hot water provision through heat pumps, biomass boilers and micro-CHP can be
considered to be “renovation and repair”, there is no reason that solar thermal should not be.
We therefore believe that both building-integrated solar PV and solar thermal should attract the
reduced rate irrespective of a social policy test, but subject to similar provisions in respect of whether
the materials account for more than 50% of the cost of the installation.
Question 2: Do you have any other comments on the proposed
implementation of these changes?
‘Qualifying persons’
We commend the Government’s inclusion of a ‘qualifying person’ social policy test in circumstances
where the reduced rate is applied pursuant to Category 10.
However, we have two concerns regarding the implementation of this test:
1. We understand that the criteria for determining a ‘qualifying person’ have been transposed
directly from those currently used to determine a qualifying person for the reduced rate as
applied to the grant-funded installation of certain heating appliances, central heating and
renewable source heating systems.
However, we believe that it would make more sense to align the ‘qualifying person’ criteria with
the eligibility criteria applied by the Scottish Government in relation to its HEEPS: Warmer
Homes Scotland programme. This would add minimally to the number of qualifying persons,
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HMRC CONSULTATION ON CHANGES TO THE REDUCED RATE OF VAT
FOR ENERGY SAVING MATERIALS
February 2016
but would crucially avoid over-complication of the market for the supply chain and customers
alike.
2. HMRC needs to give further thought to how easily the ‘qualifying person’ test will be able to be
applied in practice. We have doubts as to the likelihood that installers will be sufficiently well
informed to ask the relevant questions. We also have doubts about the willingness of
householders to reveal the relevant personal information to tradespeople, as opposed to trusted
health or social services professionals.
There will be a need for clear guidance and explanatory materials to be produced to assist both
installers and customers.
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