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Removing the mystery of VAT on Solar Solutions.

Published by Jason Koffler on 16 September 2010

VAT can be a complicated subject when it comes to solar energy solutions and what legally should be charged. However we hope the following information helps and will be updated as information becomes available.

The HMRC website provides a wealth information on what rates must be applied to different types of products and services and the first link for you is shown below.

Link 1 – HMRC Goods and Services Rates Document.

Click Here – to go straight to the HMRC document.

This document helps to highlight that energy solutions such as Solar Panels and the relevant charging rates.

Energy saving materials installed in residential or charity premises
Reduced Charge of 5% VAT to the end client.
Energy saving materials – supply only – are standard-rated see VAT Notice 708/6

Link 2 – Energy-saving materials – HMRC Reference:Notice 708/6 (August 2006)

Click Here – to go straight to the HMRC document.

This link highlights Energy saving products and their definition within the energy saving section and for Solar Panels the section is 2.9;

“2.9 Solar panels
Solar panels include all systems that are installed in, or on the site of, a building and that are:

- solar collectors such as evacuated tube or flat plate systems, together with associated pipework and equipment, such as circulation systems, pump, storage cylinder, control panel and heat exchanger; or
- photovoltaic (PV) panels with cabling, control panel and AC/DC inverter."

However a key message contained in Section 2.1 of this document states the following;

“2.1 What installations are reduced-rated?
The reduced rate applies to the installation of certain specified energy-saving materials (see paragraph 2.5) in:

residential accommodation (see paragraph 2.16); or
a building used solely for a relevant charitable purpose (see paragraph 2.17).
The reduced rate applies whether or not the installation is grant-funded and includes the price of the goods themselves.

If you supply energy-saving materials without installing then your supply is standard VAT rated."

Now, Section 2.5 states the following;

“2.5 What energy-saving materials are covered by the reduced rate?
The reduced rate applies to installations of:

central heating and hot water system controls (see paragraph 2.6);
draught stripping (see paragraph 2.7);
insulation (see paragraph 2.8);
solar panels (see paragraph 2.9);
wind turbines (see paragraph 2.10);
water turbines (see paragraph 2.11);
ground source heat pumps (see paragraph 2.2.7);
air source heat pumps (see paragraph 2.2.8);
micro combined heat and power units (see paragraph 2.2.9); and
wood-fuelled boilers (see paragraph 2.2.10)"

Residential Customers Note

You can only get these lower rates if the energy saving materials are actually installed, and the work is done on your “home”. You’ll be charged the lower rate on the installation work itself as well as the materials.

You’ll also get the lower rate on any necessary extra work that needs to be done as part of the installation – this doesn’t apply if you’re having them installed as part of a larger project such as a new roof or building an extension.

Conclusion -

If the energy saving product is supply only, then it must be charged at 17.5%, however if it includes supply and installation by an MCS approved installer then the end client can receive the reduced rate of 5%.

For Business to Business transactions where the energy saving product is resold, the reduced VAT rates do not apply.

If you would like more information on this subject please contact your nearest VAT office in the first instance or go to their website for the latest HMRC updates.

Critical Power Supplies can take no responsibility for the content of this news item as we are dependent on external bodies for the clarity of the information they provide and host.