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VAT reform plans for renewable technologies comes under fire

A range of trade bodies and associations involved in introducing renewable energy systems to homes warn that latest government proposals could undermine the UK’s low carbon ambitions

The UK Government is being urged to rethink proposed VAT reforms for lower carbon building systems that a range of trade bodies and associations argue will undermine efforts for smarter approaches to managing energy and HVACR functions.

The Solar Trade Association (STA) is among a number of bodies that have jointly penned a letter to HM Revenue and Customs (HMRC) over concerns about its proposals to rethink tax rates and how they apply to renewable energy technologies.

HMRC is looking to end a reduced five per cent VAT rate for solar installations and combined renewable energy and storage systems following a consultation on using energy saving materials in domestic properties.

The government has proposed instead that future installation costs will be charged at the full 20 per cent VAT rate in the case of projects where the cost of materials amounts to over 60 per cent of installation costs.

The STA and a range of other bodies including BEAMA, the Association for Decentralised Energy (ADE) and the Heat Pump Association (HPA) have said that many ‘solar-only’ projects may fall below this threshold. However, broader solutions that seek to use smart technologies will likely be taxed at the full rate if the proposals are introduced.

A particular risk was identified by the group for solar installations that incorporate battery storage, which would likely represent over 60 per cent of total costs. A potential hike in costs risked dissuading potential uptake of renewables in building and housing projects, according to a joint letter sent to HMRC.

Raising the threshold for the material cost threshold to 85 per cent instead would ensure more affordable battery storage and smarter energy systems for homes to help support lower carbon functions such as heating, according to the same response.

Léonie Greene, director of advocacy and new markets for the STA, said that the VAT proposals set out by government risked undermining wider national efforts to curb carbon emissions.

She said, “While the bulk of solar-only installations will not be affected, collective purchase schemes and combined solar and battery storage schemes may be put at significant risk. This is particularly perverse when the government is backing a smart energy system, which would see homes with storage helping to support the grid, saving the UK vast amounts of carbon and money.”

The STA also cited the opinions of Committee on Climate Change chief executive Chris Stark, who recently warned parliament’s BEIS Select Committee that the UK’s ability to reach net zero carbon emissions risked being undermined by the VAT amendments.

He said, “We will need to throw everything at this challenge, including onshore wind and solar for that matter. Anything that makes it harder is clearly not in line with the net zero challenge over all.”

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