VAT: CHANGES TO THE REDUCED RATE OF VAT FOR
ENERGY SAVING MATERIALS
Response by the Association of Taxation Technicians
1
Introduction
1.1
The Association of Taxation Technicians (ATT) is pleased to have the opportunity to respond to
the consultation document VAT: Changes to the reduced rate of VAT for Energy Saving Materials
(the Consultation) which was published by HMRC on 9 December 2015.
1.2
Within this response, we also comment on the related draft provisions on VAT: installation of
energy-saving materials published by HMRC and HM Treasury on 9 December 2015 alongside
the Consultation as Clause 48 (the Clause) with a view to inclusion in Finance Bill 2016.
1.3
Paragraph 8 of the related Explanatory Note (the Note) explains:
“This clause has been introduced following a judgment of the CJEU” [Court of Justice of
the European Union]” which held that the UK had failed to apply the reduced rate relief
for supplies of services of installing ESMs” [Energy Saving Materials] “correctly. These
changes are designed to ensure that UK law is fully EU law compliant whilst seeking to
retain as much of the existing relief as is possible.”
1.4
Against that background, we wish to raise a concern about the implementation and operation of
the proposed change.
1.5
Section and paragraph references in this response are to those used in the Consultation, the
Clause and the Note unless otherwise stated.
2
Practicalities
2.1
The first paragraph of section 3 (Practicalities) of the Consultation identifies the situation where:
“there could be a different VAT treatment depending upon the status of the customer (for
example, whether or not the customer is a ‘qualifying person’)”.
It notes that:
Registered in England and Wales • Registered Office: 1st Floor, Artillery House, 11-19 Artillery Row, London SW1P 1RT
A company limited by guarantee: Number 2418331 • Registered as a charity: Number 803480 • VAT Registration: Number 497539090
VAT – Changes to the reduced rate of VAT for energy saving materials: ATT comments
1 February 2016
“the different treatment will only arise in cases where the supply includes installed materials
and the cost of the materials element of the supply is greater than the labour installation
cost.”
2.2
The second paragraph of the same section explains the significance of the status of the customer as
follows:
“Following the change in legislation, where the cost of the materials element is greater than
the labour element of a supply of installing ESMs, an installer will need to account for VAT at
the standard rate (20%) on the material element (the labour element remains entitled to the
reduced rate). However, if the supplier can demonstrate that its customer is a ‘qualifying
person’, a relevant housing association or a building used solely for a relevant residential
purpose …. the whole supply will be entitled to the reduced rate (including the materials
element).”
2.3
The third paragraph of section 3 of the Consultation focuses on the practical issue of how an installer
will determine whether the customer is a qualifying person. It observes:
“HMRC do not propose to prescribe the type of evidence that an installer needs to obtain in
such a case as customers may provide different types of evidence. The requirement will be
that the installer is able to demonstrate that the customer is a ‘qualifying person’. However,
we would normally expect evidence to take the form of one of the following: a current copy
of the customer’s pension or benefit statement, a copy birth certificate, a copy passport or
anything else that clearly demonstrates the customer is a ‘qualifying person'.”
2.4
Section 2A of the Consultation explains that, through the adoption of the Group 3 definition, a
qualifying person is someone who:a) is aged 60 or over; or
b) is in receipt of one or more of the following benefits i. council tax benefit;
ii. disability living allowance;
iii. any element of child tax credit except the family element, working tax credit,
housing benefit or income support;
iv. income based job-seekers allowance;
v. disablement pension;
vi. war disablement pension;
vii. personal independence payment;
viii. armed forces independence payment;
ix. universal credit.
P/ATTTSG/Submissions/2016
2
VAT – Changes to the reduced rate of VAT for energy saving materials: ATT comments
1 February 2016
3
Our concern
3.1
We are concerned that placing the burden of determining whether a customer is a qualifying person
on the installer will give rise to practical difficulties and that this in turn will mean that (contrary to
the objective identified in paragraph 8 of the Note) access to the relief by qualifying persons is in
practice curtailed. We detail our concern below.
3.2
The normally expected evidence that is specifically identified in the Consultation is “a current copy of
the customer’s pension or benefit statement, a copy birth certificate or a copy passport”. Assuming
that the customer had those documents available, they would certainly provide evidence to the
installer of the customer’s date of birth and thereby demonstrate whether they were aged 60 or
over. However, even with the relevant documents being available, the other categories of
qualification might well be less apparent. For example:
3.2.1 How would the installer readily establish whether the element of child tax credit was or was
not one of the four exclude elements (see 2.4(b)(iii) above)?
3.2.2 How would the installer know that the “current copy” of the customer’s benefit statement
which was provided to them when the installation was booked was also current at the time
that the installation work was undertaken? The customer’s receipt of the benefit might have
terminated shortly before the order was received or between the order and the undertaking
of the work.
3.3
The Consultation assumes that the installer will take a copy of the documentary evidence that was
presented to them. That requires the installer to:
(a) have accepted the order at premises with copying facilities; or
(b) have mobile copying facilities; or
(c) take the original document away in order to copy it.
In the context of ESM installation work, we envisage that the order process is most likely to be
completed at the customer’s home so alternative (a) may not be appropriate.
Portable technology increases the possibility of the installer being able to photograph the relevant
document (alternative (b)) but that does not guarantee that they will be able to produce the
evidence if subsequently requested to do so – perhaps many months after completion of the
installation.
The potential for identity theft and other fraud makes alternative (c) very undesirable.
On a general but potentially very significant point, we think that consideration may need to be given
to the data protection implications of installers retaining such evidence about their customers.
3.4
It occurs to us that the adoption of the Group 3 definition for the proposed provision may have
overlooked the fact that in the context of grant-funded installations to which the definition
P/ATTTSG/Submissions/2016
3
VAT – Changes to the reduced rate of VAT for energy saving materials: ATT comments
1 February 2016
currently applies (such as the Warm Front scheme), the responsibility for establishing eligibility lies
not with the installer but with the Warm Front Manager or local authority. That at least is how the
process is described in HMRC’s VENSAV manual at VENSAV4400, see: http://tinyurl.com/jz8ssuz
3.5
Consistent with the objective of “seeking to retain as much of the existing relief as is possible”, we
think that it would be much more appropriate for the customer to self-certify their qualification as a
“qualifying person” – if necessary by quoting a reference number on a relevant document - and
providing that self-certification form to the installer for retention and possible future inspection. In
that way, the responsibility for the accuracy of the claim for qualifying person status would properly
remain with that individual, the installer would be entitled to rely upon it (unless it was clear that
they knowingly accepted a declaration that they knew to be invalid) and would have hard-form
evidence for filing with the installation order details. We think that such a light-touch regime would
be much more likely to meet the Government’s objective.
We note that VAT legislation includes situations where self-certification of eligibility by the recipient
of a supply is prescribed – see for example VATA 1994, Schedule 8, Group 5, Note 12 which reads:
“(12) Where all or part of a building is intended for use solely for a relevant residential purpose
or a relevant charitable purpose–
(a) a supply relating to the building (or any part of it) shall not be taken for the purposes of
items 2 and 4 as relating to a building intended for such use unless it is made to a person
who intends to use the building (or part) for such a purpose; and
(b) a grant or other supply relating to the building (or any part of it) shall not be taken as
relating to a building intended for such use unless before it is made the person to whom it is
made has given to the person making it a certificate in such form as may be specified in a
notice published by the Commissioners stating that the grant or other supply (or a specified
part of it) so relates.”
We think that a comparable provision enabling the qualifying person to self-certify their eligibility
would meet the objective of targeting the relief appropriately at the same time as avoiding adding
an awkward administrative burden on ESM installers.
4
Consultation Questions
Our replies below to the two Consultation questions need to be read in the context of our comments
above.
Question One:
Does the legislation as drafted achieve the objectives as described in this document?
If not, why not?
P/ATTTSG/Submissions/2016
4
VAT – Changes to the reduced rate of VAT for energy saving materials: ATT comments
4.1
1 February 2016
We think that the draft legislation itself has the potential to achieve the described objectives but that
imposing the burden and cost of establishing a customer’s entitlement to the relief on the installer
could significantly reduce take-up.
Question Two
Do you have any other comments on the proposed implementation of these changes?
4.2
We have studied the judgment of the CJEU (see: http://tinyurl.com/hpoc56s).
We can see from this why the changes proposed by the Clause are necessary in order to bring UK law
into line with EU provisions. In the words of paragraph 32 of the judgement, the effect of the existing
UK legislation:
“is to apply the reduced rate of VAT to the provision, construction, renovation and alteration of
any housing, with no account being taken of the restriction pertaining to the social context
within which such operations must take place, in accordance with the requirements of the VAT
Directive.”
By stipulating the categories of person who can qualify for the reduced rate, that defect in the
legislation will be addressed.
4.3
The judgment does not, however, prescribe the manner in which the UK should implement the
changes or regulate compliance. Neither, notably, does the Clause attempt to do so. We must,
therefore question the authority for both the statement in the Consultation that “The requirement will
be that the installer is able to demonstrate that the customer is a ‘qualifying person’” and the
consequential proposition that the installer must obtain documentary evidence that their customer is a
qualifying person (see section 2.3 above).
4.4
We obviously do not know what matters were discussed in any negotiations between the UK
Government and the European Commission in respect of the proposed change to UK law or what
evidence might have been offered by the Commission concerning the measures implemented by other
EU jurisdictions to ensure compliance with “the restriction pertaining to the social context” (referred to
in 4.2 above). However, the impression is left that the imposition on the installer of establishing their
customer’s eligibility for the relief (currently in the Consultation but presumably to be included in
departmental guidance) introduces an element of ‘gold-plating’ to what is actually required in order to
comply with the CJEU judgment.
4.5
If there is in fact no requirement under EU law for the imposition of an obligation on the installer to
establish their customer’s status as a qualifying person, a light-touch compliance test (such as our
suggested self-certification procedure) would seem to provide appropriate compliance with the EU
legislation.
4.6
In view of the VAT lock provision (section 2 of Finance (No 2) Act 2015) as referred to in section 5 of the
Consultation, we anticipate that the Government will be keen to avoid any gold-plating of compliance
procedures.
P/ATTTSG/Submissions/2016
5
VAT – Changes to the reduced rate of VAT for energy saving materials: ATT comments
1 February 2016
5
Contact details
5.1
Should you wish to discuss any aspect of these comments, please contact our relevant Technical
Officer, Will Silsby, on 01905 612098 or at: [email protected] .
Yours sincerely
Michael Steed
President of the Association of Taxation Technicians
6
Note
6.1
The Association is a charity and the leading professional body for those providing UK tax compliance
services. Our primary charitable objective is to promote education and the study of tax administration
and practice. One of our key aims is to provide an appropriate qualification for individuals who
undertake tax compliance work. Drawing on our members' practical experience and knowledge, we
contribute to consultations on the development of the UK tax system and seek to ensure that, for the
general public, it is workable and as fair as possible.
Our members are qualified by examination and practical experience. They commit to the highest
standards of professional conduct and ensure that their tax knowledge is constantly kept up to date.
Members may be found in private practice, commerce and industry, government and academia.
The Association has over 7,700 members and Fellows together with over 5,600 students. Members and
Fellows use the practising title of 'Taxation Technician' or ‘Taxation Technician (Fellow)’ and the
designatory letters 'ATT' and 'ATT (Fellow)' respectively.
P/ATTTSG/Submissions/2016
6