The Treasury has confirmed that microCHP (covering installations of up to 50 kW electrical capacity for VAT purposes) will continue to attract a reduced rate of 5 per cent VAT, increasing the financial incentive for end-users to invest in the technology.
“The change only applies to the standard VAT rate,” said a Treasury statement. “There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.”
As a result, CHP users could reclaim thousands of pounds on the purchase and installation costs.
The reduced rate applies to the supply of “services of installing energy-saving materials” in residential properties and buildings intended for use by charities.
This also includes solar panels, heating controls and biomass boilers and means the whole process of installing an energy-saving system qualifies for the lower rate of VAT. Installations in new properties are zero-rated.
“With VAT now accounting for one-fifth of the overall cost of purchase and installation of a CHP system, it is well worth end-users making the effort to reclaim 15 per cent through their VAT return,” said David Shaw (pictured), business manager of CHP manufacturer Baxi SenerTec.
“This will amount to several thousand pounds on many projects and will cut the payback period on the technology,” added Mr Shaw.
“We have seen a very healthy rise in enquiries over recent months. The increased VAT differential will further strengthen the financial case for CHP this year.”
CHP owners can also claim Enhanced Capital Allowances to reduce their tax bill, while the electricity produced and fuel consumed by CHP systems are exempt from the Climate Change Levy.
Contractors must exploit any commercial advantage - however small - that comes along this year, according to HVCA president Martin Burton.
“Everyone is approaching 2011 with grim determination knowing that belts are being tightened everywhere,” he said.
“The general rise in VAT is likely to have a negative impact in a number of areas, but if it conversely makes energy-saving technologies like CHP more financially attractive then it is important that we inform our clients.
“Many local authorities are considering using CHP in conjunction with district heating schemes and this will allow them to get even more bang for their buck,” added Mr Burton.