The Spring Statement announced three immediate measures designed to help deal with the rising costs of energy, including a reduction of the VAT rate for the installation of energy saving materials (ESMs). Currently, only some ESMs qualify for the 5% reduced rate.
With effect from 1 April 2022 until 31 March 2027, a temporary zero rate will be introduced to cover the installation of ESMs in Great Britain. This will include wind and water turbines, which were removed from the reduced rate in 2019, following the infraction proceedings brought by the European Commission v United Kingdom (Case C-161/14). The list of qualifying ESMs will also be expanded to include additional technologies.
The complex eligibility conditions such as the social policy conditions and the requirement that over 60% of the total cost of the installation had to relate to the service element when determining the VAT liability of ESM installations will also be permanently removed.
Businesses that provide and install ESMs to customers in England, Wales and Scotland will be eligible for the temporary zero rate.
It is currently envisaged that the 5% reduced rate will be reintroduced with effect from 1 April 2027.
In Northern Ireland, the list of qualifying goods and rate of VAT due on ESM installations will remain unchanged. The Northern Ireland Executive will receive a Barnett share of the value of the relief until it can be introduced UK-wide.
On 23 March 2022, the Chancellor delivered his Spring Statement. Read ICAEW's analysis and reaction.
This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.
More from the Tax Faculty
Stay up to date with the latest developments in tax by signing up to the Tax Faculty's weekly e-newsletter
Comprehensive support for Tax practitioners each month from the Tax Faculty and expert contributors.
Expert advice from the Tax Faculty's technical managers on all the developments in tax policy and practice.