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In order to bring the UK into line with EU law, HMRC is currently consulting on changes to the reduced 5 per cent VAT rate that has been available for the installation of energy saving materials (ESMs) in residential accommodation. 

The main changes proposed are that the reduced rate will be: removed across the board for the installation of wind and water turbines, retained where recipients are aged 60 or over, or are in receipt of certain benefits, and for Housing Association developments. 

Finally, the reduced rate will be maintained for all other residential development where the cost of the materials does not exceed 60 per cent of the total cost of installation.

Currently the law is in draft form and HMRC are consulting on the changes, although, as they have been proposed following a Court ruling in June 2015, they will almost certainly take effect from 1 October 2019. We can expect increased costs for some who will now have to pay the standard rate of VAT for the installation of ESMs, including biomass boilers and solar panels, rather than the current reduced rate of 5 per cent. Such changes, particularly for those specialising in or planning such developments should be addressed now in budgets for work taking place after October.

The draft guidance from HMRC indicates that current rules will apply if payment is made or a contract entered into before 1 October. It is hoped that this remains in the final guidance following consultation.



Published 29/04/19 by Roger Wareham

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