Households could face a 15% VAT increase on insulation and solar panels

A new EU ruling from the European Court of Justice (ECJ) could see a 15% VAT increase on domestic solar installations. This could mean that millions of UK households face paying more for home insulation and solar panels. Currently, residential solar PV and thermal installations in the UK benefit from a reduced VAT rate of 5% as opposed to the standard rate of 20%. This also applies to ground and air source heat pumps, insulation, draught stripping, micro combined heat and power units, wood-fuelled boilers, controls for central heating and hot water systems, wind and water turbines. According to the European Court of Justice, the reduced VAT rate only applies to social housing and therefore violates the EU VAT Directive. The EJC’s judgement states that, ‘The United Kingdom cannot apply, with respect to all housing, a reduced rate of VAT to the supply and installation of energy-saving materials, since that rate is reserved solely to transactions relating to social housing.’ Previously the Treasury was able to argue that the lower VAT rate was legal because the Green Deal and ECO schemes were considered social policies. Bad news for the solar industry This comes as a real blow to the UK solar industry, especially when renewable energy targets and better energy efficiency has been imposed by the EU. The Energy Saving Trust’s policy expert, David Weatherall, commented, “This is a huge backwards step and we have fully supported the UK’s fight to maintain a low rate of VAT on energy saving products.” “Cold homes is no niche issue. It is a widespread problem. Our research shows that nearly 40 per cent of households are not warm enough in winter. “At the same time the UK is going through a solar revolution with millions of homeowners taking advantage of green energy but an increase in VAT could bring our progress in this area to a grinding halt.” What does the new EU ruling mean for UK households? Whilst we wait to see whether the Government appeals the EU ruling, there’s good news for people who have already pre-ordered or pre-paid for energy saving technologies at the reduce rate, as this will not be affected as a result of the ruling. However, the 20% VAT rate will apply to households looking to install solar panels or other renewable technologies in the future, adding hundreds of pounds to installation costs. What can UK households do to beat the price rise? Households considering renewable energy technology, such as solar panels, should act now in order to benefit from the reduced VAT rate. Many Government schemes and incentives, such as the Feed In Tariff, Green Deal and Renewable Heat Incentive, are available to help with the cost of installation. Get in touch by calling us on 01242 370 308 to see what Government incentives are available and for advice on solar panel installation.