The EU has asked the UK to amend its rules on energy saving materials, which are currently subject to the 5% VAT rate, on a ‘supply and fit’ basis. Under EU VAT rules, the UK (and other member states) can only apply a reduced rate on a specified number of goods and services. Energy saving materials are not on that list, so the UK is presently in breach of EU law. Although it sounds like a nice cosy request thus far, if the UK doesn’t change the law within 2 months, the EU may refer the matter to the European Court of Justice – at which point they will stamp their feet and get really cross about it…

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9 comments on “Energy saving materials to be attacked by the EU

  • Hi Dave,
    Great blog.
    We’ve now supplying and also undertaking our own renovation projects with an insulating cork render and plaster called ecoCORK. It comes as part of its own system of backing and finishing coats. We had spoken to HMRC and thought that as an insulating material we could advertise it as 5% VAT when a contractor bought it to supply and fit. It seems from your blog that this is correct at the moment but mmay be subjecyt to change of EU law is imposed regarding “supply and fit”. Are we correct that it would be VAT rated at 5% for the actual work ( we will still be charging VAT at 20% for supply to the contractor ) and how long may this last ?
    Does this 5% rate apply whether a buildings is listed or not ?
    We’ve added a couple more links to your website from ours by the way.

  • Hi.
    Thanks for the kind words and good to hear from you again.

    Unless you do supply and fit, you will always be charging 20% VAT for the materials alone – that much is certain. At present, as you know, the product would be liable to 5% VAT on a supply and fit basis, being insulating materials and this applies to all domestic properties, whether listed or not. Everything has been strangely quiet since the announcement about this, but I’d anticipate a change in next year’s Budget. The Chancellor may, of course, make a preliminary mention of it in the pre-Budget announcement in November.
    Regards
    Dave

    PS – thanks for adding the links to your website as well.

  • Hi Dave,
    A couple of follow up questions if I may ;
    1. The 5% on supply and fit is applied to the labour and materials, not just the ecoCORK insulating material itself, so covers all the render materials and labour ?
    2. Would this mean that the painting we do afterwards as part of the rendering ( limewash or silicate paint) would be rated at 5% for the labour and materials.
    3. If we have to supply scaffolding for the ecoCORK work would this be rated at 5% to the customer irrespective of he rate charged to ourselves ?

    thanks
    Mike

  • Mike

    Question: What is the focus of the job? Answer: To insulate the wall. VAT rate = 5%. And that is the complete job. Would the customer expect you to rip out what’s there at present and simply put in the insulating materials? And nothing else? No, of course not, the customer wants you to leave the area in a presentable state and therefore the 5% applies to ‘making good’ afterwards. In HMRC guidance, they accept that, in installing roof insulation, you can also charge 5% VAT for the construction of a loft hatch, if there wasn’t one already. Same principle applies in your example.

    As regards the scaffolding, you are charged 20% by the scafflding firm. Are you supplying scaffolding to your client, per se? No, you’re supplying insulation (at 5% VAT) and the scaffolding is part of that supply and any inherent scaffolding cost will also be at 5% VAT.

    Regards
    Dave

  • Hi Dave,
    Thanks for the clear response. I have one final question and then I’ll leave you in peace !!
    In a number of situations for which we are tendering the focus of the job is to take off defective existing render or plaster and replace with a lime mortar. We’re choosing to use a more insulating lime mortar in the ecoCORK than other alternatives but would HMRC be able to argue that the focus of the job is repair not insulation per se and therefore the 5% rate isn’t applicable ?
    thanks
    Mike

  • HI Mike

    No worries about the further question, glad to help.

    This is an excellent, and timely, question in view of the removal of the listed building zero rating in a few weeks time. In simple terms, if the work is being done to a residential property for which zero rating is no longer available, or else one that isn’t listed, the question of ‘repair’ doesn’t really come into it. You simply have to ask yourself “Am I being asked to insulate the wall?” And if the answer is ‘yes’, then it can be charged at 5% VAT. HMRC rules on the energy saving relief already state that if the insulation is merely a part of a larger job, then it will follow the liability of that larger job. So, if you are asked to change from cement to lime render, that will be liable to VAT at 20%, so the insulation will be as well.
    Regards
    Dave

    For completeness, it is worth mentioning that where an application for listed building consent was made prior to 21 March 2012, zero rating can still apply until 30 September 2015, so there will remain jobs that will be complicated by the question of zero rating, or not.

  • Hi Dave

    I have a VAT question. I am currently negotiating a contract for an insulated flat roof. The area covered will be 150 sq meters of a flat roof on a bungalow. The roof was constructed in 1987 and has an uneven 2 inches of fibreglass insulation over the area, which is well below the current standards and as it is the lounge and kitchen area will be costing me a bomb to heat. I wish to cap the roof with Kingspan 120mm insulation covered by a Sarnafil coating. The basic roof will remain in situ and the insulation and covering is to be laid above.

    As the roof is flat there is no way of getting insulation under the existing roof without removing the ceilings.

    Could you please let me know what, if any, of the new roof would be 5% rated?

    Thanks

    John

  • Hi John

    Apologies for the delay in replying.

    If the focus of the job is to insulate the roof, all of the labour and materials should be liable to VAT at 5%, if carried out by a VAT registered contractor. If you were to buy the materials yourself, this would be liable to VAT at 20% and there is no way of mitigating that.

    Regards
    Dave

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