The Builders Merchants’ Federation (BMF) has welcomed news from Parliament that the Government will keep the current reduced rate of Value-Added Tax on the supply and professional installation of energy-saving materials, despite losing a European court case last year.
The Prime Minister told the House of Commons recently that his Government will not oppose a move by Conservative MPs – acting with the Labour Party – to stop VAT on insulation, heating & hot water system controls, heat pumps, and solar panels being levied at the 20% standard rate.
Brett Amphlett, BMF Policy & Public Affairs’ Manager, commented: “We are very pleased the Government will keep the reduced rate on materials and products that BMF members distribute. This is a significant victory for the BMF. Now the legislation has been passed, improvements can continue to enjoy the 5% rate to make homes warmer, cut bills and save money. That is good news for merchants, manufacturers, solar panel installers and insulation contractors.”
Since June 2012, the BMF has lobbied to keep 5% VAT on energy-saving materials defined in eleven product categories under EU law. On several occasions, Mr Amphlett has raised it in person with politicians – including twice with the PM and twice with the Financial Secretary to the Treasury, David Gauke MP, the minister with day-to-day responsibility for VAT.
In June 2012, the European Commission told the UK Government to amend the law to elevate VAT charged on insulation, heating & hot water system controls, heat pumps, and solar panels to the 20% standard rate. Brussels said the current 5% rate was illegal and in June 2015, the European Commission won a case in the Court of Justice. There is no further right of appeal.
A three-and-a-half year BMF lobbying campaign to keep existing tax relief took a final twist this week when the Labour Party put down amendments to the Government’s Finance Bill to prevent the existing rate going up from 5% to 20% – a 400% increase. Faced with a defeat if it had gone to a vote, ministers climbed down and agreed to allow their own legislation to be amended by the Opposition to give the Treasury the power to resist the EU VAT rules.
Earlier this year, the BMF responded to a Whitehall consultation – initiated by HM Revenue and Customs – inviting views on legislation designed to comply with EU law. The Federation and other trade associations, anti-fuel poverty campaigners and property professionals advised the HMRC to see how, and on what grounds, existing tax relief could be retained.
The BMF said 5% should be kept for all currently-eligible materials & products and urged ministers to maintain the status quo. The Federation argued that:
- solar photovoltaic ought to be kept – especially for solar tiles because they are an integral part of the structural fabric of buildings, rather than add-on equipment
- solar thermal ought to be kept because it provides hot water and contributes towards space heating. If heat pumps and biomass boilers are eligible, solar thermal should be too.
The HMRC has yet to formally reply to its own consultation exercise – something that could take months, due to the complexity of EU law. Until then, the reduced rate continues to apply as before.