Tax rate hike for domestic Solar, Storage and Biomass Boiler markets contested by industry
- Sudden consultation released by HMRC, which closes today, proposes to increase VAT rates for technologies such as solar, biomass boilers, and energy storage
- The VAT rate hike from 5% to 20% for many domestic installations will make it more expensive for households to reduce their carbon footprint and further slow deployment
- The hike comes off the back of wider withdrawal of policy support and in the same week the UK Parliament declared a ‘climate emergency’ and the Committee on Climate Change published its report recommending the UK reduce its greenhouse gas emissions to zero by 2050
- Supplies of coal fuel for home use still receive a reduced 5% VAT rate
- The REA has come up with possible solutions in its consultation response and urges government not to proceed with this hike or reclassify solar, biomass boilers and energy storage, to ensure incentives for decarbonising homes are supported.
The Renewable Energy Association (REA) is contesting a proposal by HMRC to increase VAT rates on low carbon technologies such as domestic solar, biomass boilers, and battery storage.
The HMRC consultation, which closes today (3rd May 2019), proposes that consumers who wish to install certain domestic ‘energy saving materials’ will be hit by a tax hike from 5% to 20%. Most household solar PV, biomass boiler and battery storage (when installed alongside solar PV) installations previously benefitted from a reduced rate of 5% VAT.
Despite falling costs of solar and lithium-ion battery storage units, this hike in the VAT rate could mean the UK market is put at a strategic disadvantage for attracting investment and transitioning its energy system, effectively adding 15% to the cost of most new projects’ equipment and penalising consumers who wish to reduce their carbon footprint.
In comparison, coal which is sold as a fuel for domestic use is given a reduced VAT rate of 5%.
The consultation closes the same week that the UK Parliament passed a motion to declare a ‘climate emergency’ and the Committee on Climate Change recommended moving the country to ‘net zero’ greenhouse gas emissions by 2050, and contradicts the Government’s commitment to tackling climate change.
The consultation has taken industry by surprise, as these VAT rates were consulted on in 2015/16 and considered to be finalised at the current 5% rate following assurances at the time from ministers. The hike is all the more surprising given that Government’s own analysis shows that it would have a ‘negligible impact’ on financial receipts to Treasury whilst erecting another barrier to low carbon energy deployment.
This negative proposal for the small scale renewable power sector follows hot on the heels of the withdrawal of other key support schemes such as the Feed-in-Tariff.
The REA believes these HMRC proposals could further constrain the empowerment of millions of homes who wish to take action on climate change.
Frank Gordon, Head of Policy at the Renewable Energy Association commented:
“The proposed VAT rate hike hits the small-scale renewable energy industry hard during an already difficult landscape. This change risks setting back the UK decarbonisation of homes and businesses in the UK by a number of years.
“Despite recent mass climate-related protests and the UK Parliament declaring a ‘climate emergency’, the Government is again erecting a barrier to cutting emissions and increasing the costs for households who want to help. They are also failing to recognise the cumulative impact of withdrawing as many as 18 policy mechanisms that supported renewable energy deployment since 2015, which could leave the UK trailing behind on decarbonisation and clean growth.
“The REA hopes that Government will listen to our recommendations, reconsider and address this issue urgently to utilise the hard work businesses have been engaged in to drive down the costs of solar and energy storage.”
Notes to editors
- The HMRC consultation can be found here: https://www.gov.uk/government/consultations/draft-legislation-vat-reduced-rate-energy-saving-materials-order-2019
- Where the technology costs of an eligible installation are above 60%, they are proposing that 20% VAT is paid instead of the current rate of 5% on the machinery costs only, labour costs would still benefit from the reduced rate of 5% VAT.
- The reduced rate of 5% VAT will still be available for residential installations for recipients who are aged 60 or over or receiving certain benefits, and for housing associations.
- The final decision will be introduced by Statutory Instrument to come into force on 1st October 2019.
- Reduced rate of VAT on supplies of domestic coal: https://www.gov.uk/guidance/vat-on-fuel-and-power-notice-70119
- UK Parliament declares a climate emergency: https://www.bbc.co.uk/news/uk-politics-48126677
- “Negligible impact” on Government revenues quote taken from accompanying HMRC Tax information and Impact Note: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/791587/Draft_TIIN_VAT_changes_to_the_reduced_rate_for_energy-saving_materials.pdf
For more information or to request an interview, please contact:
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About the Renewable Energy Association (REA)
The REA is the UK’s largest trade association for renewable energy and clean technologies with around 550 members operating across heat, transport, and power. The REA is a not-for-profit organisation that represents renewable energy and clean technology companies operating in over fourteen sectors, ranging from biogas and renewable fuels to solar and electric vehicle charging. Membership ranges from major multinationals to sole traders.
For more information, visit: www.r-e-a.net