Energy Saving Materials (ESM) – VAT treatment Consultation ends

At Centurion – Xeinadin’s Indirect Tax team – we’ve delivered a number of VAT sessions on this issue for our clients and networks across the UK through the month of May. This was as a part of our response to the Consultation process from HMRC on the future of VAT legislation to support a UK wide change of behaviour on the reduction of the use of fossil fuels and improved energy conservation, using VAT rules as a way of encouraging that.

Many other organisations that we work with have done the same and there is a degree of consistency to the messages which will now have landed on the HMRC Policy Team’s desk.

There’s a range of new technologies they’ve been alerted to, outside of general agreement that large batteries for the storage of green energy produced in the residential setting, should be included in the list of qualifying materials to access the Zero Vat rate.

A wider point made by us, and others, was around the ability of suppliers to be able to “apportion” their contracts for works between those that qualify for VAT relief and those that don’t. HMRC don’t seem to like this suggestion at the moment, YET it is exactly what suppliers of construction services can do when looking at the reliefs available to different types of construction services.

Indeed, in Ireland, we’ve noted that installers of solar panels there can apportion their supplies which relate to mixed use (commercial and residential) buildings to ensure the residential aspects benefit from the VAT relief available.

Better and more specific examples and guidance from HMRC on ESM projects was a strong thread in our consultation response not just on the types of projects and materials that in the UK can qualify for the current VAT Zero rate relief, but also of the question of returning buildings used by a charity for their non-business activities into the relief scope. Certainly, a benefit to many charities but from practical experience many of the buildings used by charities have a business use as well. With declining grants available many charities look to income generate from their facilities, so without the ability to apportion EMS installation works on mixed use buildings the reality of how many charities could benefit if they were returned to the qualifying use criteria has to be questioned.

As to the likelihood of when we might expect to hear a response on any changes to be implemented from this consultation then it’s a crystal ball moment. We’d hope to hear of some progress as soon as possible – perhaps an Autumn Statement would be a good moment as organisations look to a winter on further concern over energy costs?

If you are involved in the supply and installation of ESM or are an organisation planning such works and would like guidance of the best way to approach them from the VAT perspective then do just drop us a line at IndirectTax@xeinadin.com or email your usual Centurion VAT contact for support.

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