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Trade bodies issue warning to industry over VAT rate

APHC and SNIPEF have warned the plumbing and heating industry to ensure application of the appropriate VAT rate when installing heating systems.

This follows clarification received from HMRC after a direct request from APHC.

The confusion has arisen as certain energy-saving materials (ESM) can be charged at a lower rate of VAT, but there are further implications when these are combined with other technology.

The HMRC response stated that ESM are only eligible for the reduced rate when they are supplied and installed in isolation.
This is not applicable when they are ancillary to another supply or part of a greater supply.

Under basic VAT principles of single/multiple supply, said HMRC, any element which is integral or incidental to a greater supply must adopt the same liability of that greater supply.

This means that if the supply and installation of a central heating system is liable for VAT at the standard rate (20 per cent), any ESM incidental or integral to the system must also have the same standard-rated VAT liability.

Under the same principles, if the central heating system be installed as part of a zero-rated or reduced-rated building project, the supply and installation of the ESM will have the same liability.

The example of a system comprising boiler, radiators, copper pipe, radiator valves and controls was used for further clarification.

Supplied together, they form a single central heating system, even though some components of the central heating system are ESM and would be eligible for the reduced rate of VAT.

As there is no reduced rate for the supply of a whole central heating system, the supply incurs the standard 20 per cent VAT rate.