EU to raise VAT rate on the Install of Energy Saving Measures

We did wonder what would happen with the energy saving sector as a result of the Conservatives gaining the majority in 2015’s General election. We were expecting announcements on the Energy Company Obligation, the Green Deal and even the subsidies paid out for renewable heating systems and renewable electricity production.

So far though we have only seen one major announcement, and it actually goes in the face of George Osborne’s manifesto pledge not to increase the VAT rate.

The EU is calling the shots again!

At the moment here in the UK you can install ‘energy saving materials’ at a reduced rate of VAT. This includes things like solid wall insulation, loft insulation and solar panels. Under a ruling from the Court of Justice of the European Community last Thursday (4th June 2015), it was announced that in offering the lower VAT rate for these energy saving materials, the UK is failing to adhere to the VAT Directive set by the EU.

This is a major blow to the UK, where hundreds of thousands of energy saving products are installed every year. It also seems to go against the EU’s shared vision for countries to decarbonise their economy and reduce the amount of energy derived from fossil fuels.

Put simply, when an energy saving measures is installed in someone’s home, their energy demand decreases. It requires less gas or electricity to heat the home in the winter months – and therefore collectively if we all install these energy saving measures then our peak demand for energy will fall considerably.

The US recently did a study that showed that reducing energy demand by pushing energy efficiency is 3 times cheaper than installing new energy production facilities like power plants.

EU ruling contradicts effort to improve energy efficiency!

This ruling seems to be hugely contradictory – surely keeping the VAT rate where it is for energy saving products will help in the long term the UK to meet it’s EU targets for energy consumption.

Take for example the fledgling solid wall insulation market here in the UK. Over the last quarter we have installed hundreds of properties here in London with BeConstructive with an average install price of over £7,000 inclusive of VAT @ 5%.

Of these jobs, only a fraction of customers have had to fork out the whole amount for the insulation because they have received vouchers via the GDHIF scheme and used Green Deal finance, however still the customer contributions have not been small.

Under the new VAT regime when (or if) the EU force it through, the average job would cost the customer an extra £1000 which is a huge amount!

Our Advice – install everything before the changes go through!

To be honest though, we feel things are pretty clear – to ensure you get the best value for money – act fast and get whatever energy saving measure you want to get installed sorted now – before the EU can act.

They will not be retrospectively able to increase the VAT amount for jobs already completed, so if you are dithering or waiting until the cold weather sets in, it might cost you a lot more than you bargained for!

Think we missed something? Do you have a different opinion?

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