VAT reliefs for Energy Savings Materials – Challenges from HMRC

We’ve commented in the past on the complexities of the VAT reliefs for Energy Saving Materials – back in July 2022 we posted a case on conservatory roof systems and this year we see another roofing panel material case in the Tribunal system again with an unsuccessful outcome for the taxpayer. This case is Greenspace (UK) Ltd which went all the way to the Court of Appeal for review but again floundered on the distinction between insulation for a roof and the supply of the roof itself.

We are increasingly seeing HMRC challenge the use of VAT reliefs in respect of the installation of insulation. We have commented in the past as to the inability of the provider to be able to apportion any qualifying insulation works for VAT relief when those works sit within a larger contract with other non-qualifying services. This is now moving into a challenge as the purpose behind the works being undertaken even where they clearly relate to the installation of insulation. News has reached us of situations where if the “intention” behind the fitting of insulation to domestic properties is to effect repairs to the property HMRC does not see this as meeting the requirement of the – now zero-rated – scope of the VAT relief.

Where the intention behind the works is noted in the VAT legislation is unclear to us and this approach certainly seems to fly against the drive across all government bodies in the UK to improve energy efficiency, particularly in the provision of social housing. Large grants are being made available to registered social landlords to enable them to undertake such works yet we find HMRC seeking to remove the access to VAT reliefs in this regard. The result being that social landlords including charitable bodies such as housing associations, unable to recover their VAT, spend 1/6^th of those grants in paying VAT to suppliers that flows back to the Treasury. Certainly, an issue, we feel, needs to be challenged if HMRC continues in this approach.

Cladding - Challenge by HMRC to the right to zero rate

In addition to challenges relating to the “primary purpose” justification of insulation installations, we have seen a recent approach from local HMRC officers to reverse a written ruling obtained from HMRC’s central team. The written ruling, sent to a contractor, confirmed that the retrospective refit of cladding to a block of flats their customer had originally constructed some years back, qualified for zero rating. The facts of the matter were fully disclosed to HMRC at the time of the original ruling, yet HMRC’s local officers are taking the view that they have to “correct” that position as it was given in error. It’s an ongoing dispute and we have become aware that this type of challenge from HMRC on retrospective refits of cladding, post the Grenfell tragedy, is occurring elsewhere across the UK. It has the feel of a targeted approach by HMRC.  

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