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Green Building Bible, Fourth Edition
Green Building Bible, fourth edition (both books)
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    see https://www.gshp.org.uk/Reduced_Rate_Vat.html

    "Reduced rate VAT – 5% – applies on installation of Ground Source Heat Pumps
    The reduced rate will remain fully available (except on wind and water turbines) after 1 October 2019 for supplies of services of installing "energy saving materials" in residential accommodation where the supply is made to a qualifying person (a person who is aged 60 or over or is in receipt of certain benefits), a relevant housing association or where the residential accommodation is a building or part of a building used solely for a relevant residential purpose.

    Otherwise, the reduced rate will be available (except on wind and water turbines) provided that the value of the "energy saving materials" does not exceed 60% of the total value of the supply of installing the "energy saving materials". If the value of the "energy saving materials" exceeds 60%, then only the labour cost element will qualify for the reduced rate (with the supply of the materials being standard rated).

    Installation of any of the following energy saving materials in residential accommodation qualifies (subject to the paragraphs above) for the lower rate of VAT:

    controls for central heating and hot water systems
    draught insulation (eg around windows and doors)
    insulation on walls, floors, ceilings, lofts, etc
    solar panels
    ground-source heat pumps (including ancillary supply like ground works)
    air-source heat pumps
    wind turbines – this will not apply to wind turbines supplied after 1 October 2019
    water turbines – this will not apply to water turbines supplied after 1 October 2019
    micro combined heat and power units
    wood-fuelled boilers
    The lower rate of VAT applies if the energy saving materials are installed and the work is done on residential accommodation.

    The lower rate applies on any necessary extra work that needs to be done as part of the installation. For the installation of a ground source heat pump system this includes the heat pump, the ground loop, system controls and any other installation ancillary to the supply. Because a ground source heat pump installation generally provides heat at a lower temperature than a fossil fuel boiler there may be a need to increase the number or size of the radiators as part of the ancillary work or to install underfloor heating. See Heat Emitter Guide.


    the reduced rate does not apply if you buy materials directly: it only applies if you buy an installation (which includes the supply of materials)
    the reduced rate only applies for an installation of these items (including ancillary items) to residential accommodation
    if the installation is part of a wider supply, such as a new extension, then the reduced rate does not apply. This means that the reduced rate will only apply if the installation of energy saving materials is the dominant part of the supply.
    if the installation is in a new building then the supply is zero-rated for VAT.
    This pages summarises advice given in HMRC VAT Notice 708/6 Energy-saving materials."
    • CommentAuthorjamesingram
    • CommentTimeNov 13th 2019 edited
    "2.4 The 60% test
    Where the social policy conditions are not met, it is necessary to apply the 60% test to a supply of installing energy-saving materials. The business, which provides the services of installation, has to calculate the VAT to charge.

    It must first establish the price that it paid to purchase the materials (excluding VAT) used in the installation and calculate this as a percentage of the total value of its supply (excluding VAT) to its customer. The materials that must be included in this calculation are all of the goods supplied to the customer as part of the installation which remain in place once the job has been completed.

    For example, a business installs insulation in a residential property. It pays £400 (excluding VAT) for the insulation material and charges its customer £1,000 (excluding VAT) for the installation. Since the cost of the materials to the business is only 40% of the value of the supply that the business makes to its customer, the business can charge the reduced rate of 5% on the total supply, that is 5% of £1,000 = £50.

    However, where the 60% threshold is exceeded (that is, where the percentage is 61% or more using normal rounding conventions), the business will need to carry out an apportionment. This requires the business to apportion the value of the total supply that it makes to its customer, between materials (which will be standard rated) and labour (which will be reduced rated).

    For example, a business carries out an installation of solar panels combined with a battery. It pays £5,000 for the solar panels and battery (excluding VAT) and charges its customer £7,500 (excluding VAT) for the installation. Since the cost of the materials to the business is 67% of the value of the supply the business makes to its customer, the 60% threshold is exceeded. This means that the business will need to separately identify the value of the materials supplied to its customer and charge VAT at the standard rate on the supply of those materials. The labour element of the supply will continue to qualify for the reduced rate.

    2.5 Subcontractors
    If you’re a contractor working on behalf of another business, you’re not making a supply to a ‘qualifying person’ or a ‘relevant housing association’, therefore you may need to apply the 60% test to a supply of installing energy-saving materials to determine whether your supply qualifies for the reduced rate.

    2.6 When the new rules take effect"
    • CommentTimeNov 13th 2019
    I can imagine a couple of scenarios where those rules are going to cause embarrassment.

    Mostly, firms seem to price the materials (at least major ones like panels and inverter) separately from the labour. So they'll have to reveal something about their mark-up if they want to offer reduced VAT.

    And how does the subcontractor situation work out? The subcontractor has to charge 20% VAT, which the main contractor has to pay to them and then charges reduced VAT to the end customer. How does that get resolved?
    For most of the works that are eligible, the labour plus overheads plus markup/profit will naturally come to >40% of the price. You'd have to be doing something very close to 'supply only' for the cost price (to the supplier) of the materials to be >60% of the total price (to the customer). In which case you're competing with retailers, who always have to charge full VAT, so seems fair enough.

    Whats to stop the main contractor splitting the job into two chunks, one for the labour and a slice of the materials (<60% of invoice), this invoice would qualify for 5% Vat. Then a second contract for the rest of the materials at 20% Vat.

    Or the main contractor just bumps up their labour charge artificially, to push the labour element up, to qualify for reduced vat on the whole job. So long as the overall price to the consumer doesn't go up by more than the saving on VAT.
    Yes Will, plenty of room to make it work to get the overall price down , certainly for the client dealing direct with installer rather than the larger company, installer subby setup.
    As someone that wants to see more PV installed at straight up prices rather than inflated 'specialist' margins or to cover excessive regulation on a very simple product I'm happy to tell you a 4kWp system material cost trade is around £2k ex-vat
    • CommentTimeNov 14th 2019
    Trouble with not getting am MCSE approved installation is that you will not get paid for any excess production that is exported.

    It’s a typical stitch up to keep someone in a job.
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