Further applause for Government climbdown over reduced VAT rate

New_BMF_logo_MAINThe Builders Merchants’ Federation (BMF) has joined other associations in their approval of the Government move to keep the current reduced rate of VAT on the supply and professional installation of energy-saving materials, despite losing a European court case last year.

The Prime Minister told the House of Commons that his Government will not oppose a bid by Conservative and Labour MPs to stop VAT on insulation, heating & hot water system controls, heat pumps, and solar panels being levied at the 20% standard rate.

Brett Amphlett, policy & public affairs manager at the Builders Merchants’ Federation, commented: “We are very pleased the Government will keep the reduced rate on materials and products that BMF members distribute. This is a significant victory for the BMF.

“Now the legislation has been passed, improvements can continue to enjoy the 5% rate to make homes warmer, cut bills and save money. That is good news for merchants, manufacturers, solar panel installers and insulation contractors.”

In June 2012, the European Commission told the UK Government to amend the law to elevate VAT charged on insulation, heating & hot water system controls, heat pumps, and solar panels to the 20% standard rate, and since then the BMF has been one of many associations lobbying to keep 5% VAT on energy-saving materials defined in 11 product categories under EU law.

Last week the Labour Party put down amendments to the Government’s Finance Bill to prevent the existing rate going up from 5% to 20% and, faced with a defeat if it had gone to a vote, ministers climbed down and agreed to allow their own legislation to be amended by the Opposition to give the Treasury the power to resist the EU VAT rules.

Earlier this year, the BMF responded to a Whitehall consultation – initiated by HMRC – inviting views on legislation designed to comply with EU law. The Federation and other trade associations, anti-fuel poverty campaigners and property professionals advised the HMRC to see how – and on what grounds – existing tax relief could be retained.

The BMF said 5% should be kept for all currently eligible materials & products and urged ministers to maintain the status quo. The Federation argued that:

  • Solar photovoltaic ought to be kept – especially for solar tiles because they are an integral part of the structural fabric of buildings, rather than add-on equipment.
  • Solar thermal ought to be kept because it provides hot water and contributes towards space heating. If heat pumps and biomass boilers are eligible, solar thermal should be too.

The HMRC has yet to formally reply to its own consultation exercise – something that could take months, due to the complexity of EU law – and until then, the reduced rate continues to apply as before.

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