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Watch out for an energy efficiency and renewables price hike

Posted by Gabby Mallett on 12 June 2015 at 11:05 am

No it’s not that prices for silicon are going through the roof, or tradesmen are getting above inflation pay rises, it’s all about the EU. It turns out that the UK’s low rates of VAT on energy efficiency and renewables are in breach of EU laws. This means that rather than paying 5% on the items below you will be charged 20% VAT.

Energy Products:

  • controls for central heating and hot water systems
  • draught insulation, e.g. around windows and doors
  • insulation on walls, floors, ceilings, lofts, etc
  • solar panels
  • wind turbines
  • water turbines
  • ground-source heat pumps
  • air-source heat pumps
  • micro combined heat and power units
  • wood-fuelled boilers

There is currently also a 5% VAT rate for some heating improvements when funded through grants for eligible households.

A standard 4kWp PV system which may cost around £6,000 now would incur just £300 of VAT at the 5% rate, whereas at a 20% rate it would be £1,200. That’s quite a big difference.

Given that the EU is promoting the uptake of renewables and a reduction of carbon emissions, for which the UK has legally binding targets, this does appear to be a bit of a backwards move. This effective price hike could have a serious impact on the number of installations completed. It will be particularly relevant where Green Deal Finance is taken up as a smaller amount of the cost will be fully covered by the Golden Rule.

So what does this mean for you? Well, nothing immediately. The Government will now spend some time going over the ruling from the European Court Of Justice which effectively says that the UK can’t say that the reduced rate contributes to fulfilling a social policy objective, though it may be able to in social housing. They may appeal the ruling, or may look to keep the exemption on different grounds.

It’s also worth noting that any changes couldn’t be applied retrospectively. So, if you have already ordered your installation at a given rate of VAT you would be protected from any rise in the future. It may be that now is the time to get your installations completed, before the price goes up?

More information about Energy Saving and Renewable Energy on YouGen

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1 comments - read them below or add one


neilwilliamsComment left on: 1 July 2015 at 7:34 am

This article suggests that the decision could be appealed, but it can't. It was referred to the European Court of Justice two years ago for a judgement and their decision is final.

I am not sure there is any way the government could retain it, so anyone interested in getting rtenewables or energy conservation measures at the 5% rate should act quickly before the rate change can be formalised by the next finance act, probably in a couple of months time.

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