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The supply and fitting of energy-saving materials in residential accommodation attracts a reduced rate of VAT. What does it apply to? What are the qualifying conditions? What case law is there on this topic?

A guide for subscribers.

At a glance

A reduced rate of VAT applies to the supply and installation of energy savings materials.

The goods and services are as listed in Groups 2 and 3 of Schedule 7A VATA 1994.

This note works through the VAT legislation and adds observations and case law.

What's new?

As part of the Spring Statement 2022, it was announced that there will be a widening of the relief available for the domestic installation of qualifying ESMs in Great Britain.

These changes were implemented by The Value Added Tax (Installation of Energy-Saving Materials) Order 2022. See Small print & links

Energy-saving materials

The following supplies, found in Group 2 VATA 1994, are energy-saving goods, and services to install or connect them. They qualify for a reduced rate of VAT, currently this is 5%.

From 1 April 2022 until 31 March 2027 qualifying installations will be zero-rated, see What's new?

Group 2

1. The supply of services for installing energy-saving materials in residential accommodation, where the energy-saving materials are not supplied by the person supplying the services.

2. The supply of services for installing energy-saving materials in residential accommodation, including the energy-saving materials installed, where:

(a) The supply is made to a qualifying person and the residential accommodation is the qualifying person’s sole or main residence.

(b) The supply is made to a relevant housing association.

(c) The residential accommodation is a building, or part of a building, used solely for a relevant residential purpose.

3. The supply, in a case not falling within item 2, of services of installing energy-saving materials in residential accommodation, including the energy-saving materials installed (but see Note A1).

Note A1 Restriction on item 3

The reference to cost is to cost net of VAT.

Meaning of 'energy-saving materials'

(a) Insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings.

(b) Draught stripping for windows and doors.

(c) Central heating system controls (including thermostatic radiator valves).

(d) Hot water system controls.

(e) Solar panels.

(f) –

(g) –

(h) Ground source heat pumps.

(i) Micro combined heat and power units. air source heat pumps.

(j) Micro combined heat and power units.

(k) Boilers designed to be fuelled solely by wood, straw or similar vegetal matter.

Observations on interpretation (Judge Richards, in Pinevale)

As energy savings materials and techniques develop so does the law in this area.

Meaning of 'residential accommodation'

For the purposes of Group 2 'residential accommodation' means—

(a) a building, or part of a building, that consists of a dwelling or a number of dwellings;

(b) a building, or part of a building, used for a relevant residential purpose;

(c) a caravan used as a place of permanent habitation; or

(d) a houseboat.

(2) For the purposes of this Group 'use for a relevant residential purpose' has the same meaning as it has for the purposes of Group 1 (see paragraph 7(1) of the Notes to that Group).

(3) In sub-paragraph (1)(d) 'houseboat' has the meaning given by paragraph 7(3) of the Notes to Group 1.

Meaning of 'qualifying person'

For the purposes of this Group 'qualifying person' has the same meaning as it has for the purposes of Group 3 (see next tab).

Note: this restriction is removed in Great Britain from 1 April 2022. See What's new?

Meaning of 'relevant housing association'

For the purposes of this Group 'relevant housing association' has the meaning given by Note (21) of Group 5 of Schedule 8 (zero-rating: construction of buildings etc.).

Grant-funded Installation of goods & supplies

Group 3 applies to Grant-funded installation of heating equipment or security goods or connection of gas supply.

Reduced rate VAT applies to the following Group 3 supplies:

1. Supplies to a qualifying person of any services of installing heating appliances in the qualifying person’s sole or main residence.

2. Supplies of heating appliances made to a qualifying person by a person who installs those appliances in the qualifying person’s sole or main residence.

3. Supplies to a qualifying person of services of connecting, or reconnecting, a mains gas supply to the qualifying person’s sole or main residence.

4. Supplies of goods made to a qualifying person by a person connecting, or reconnecting, a mains gas supply to the qualifying person’s sole or main residence, being goods whose installation is necessary for the connection, or reconnection, of the mains gas supply.

5. Supplies to a qualifying person of services of installing, maintaining or repairing a central heating system in the qualifying person’s sole or main residence.

6. Supplies of goods made to a qualifying person by a person installing, maintaining or repairing a central heating system in the qualifying person’s sole or main residence, being goods whose installation is necessary for the installation, maintenance or repair of the central heating system.

7. Supplies consisting of the leasing of goods that form the whole or part of a central heating system installed in the sole or main residence of a qualifying person.

8. Supplies of goods that form the whole or part of a central heating system installed in a qualifying person’s sole or main residence and that, immediately before being supplied, were goods leased under arrangements such that the consideration for the supplies consisting in the leasing of the goods was, in whole or in part, funded by a grant made under a relevant scheme.

8A. Supplies to a qualifying person of services of installing, maintaining or repairing a renewable source heating system in the qualifying person’s sole or main residence.

8B. Supplies of goods made to a qualifying person by a person installing, maintaining or repairing a renewable source heating system in the qualifying person’s sole or main residence, being goods whose installation is necessary for the installation, maintenance or repair of the system.

9. Supplies to a qualifying person of services of installing qualifying security goods in the qualifying person’s sole or main residence.

10. Supplies of qualifying security goods made to a qualifying person by a person who installs those goods in the qualifying person’s sole or main residence.

Supply only included so far as grant-funded

(1) Each of items 1 to 7 and 8A to 10 applies to a supply only to the extent that the consideration for the supply is, or is to be, funded by a grant made under a relevant scheme.

(2) Item 8 applies to a supply only to the extent that the consideration for the supply:

(a) is, or is to be, funded by a grant made under a relevant scheme; or

(b) is a payment becoming due only by reason of the termination (whether by the passage of time or otherwise) of the leasing of the goods in question.

Meaning of 'qualifying person'

(1) For the purposes of this Group, a person to whom a supply is made is 'a qualifying person' if at the time of the supply he—

(a) is aged 60 or over; or

(b) is in receipt of one or more of the benefits mentioned in sub-paragraph (2).

(2)Those benefits are—

(a) council tax benefit under Part 7 of the Contributions and Benefits Act;

(b) disability living allowance under Part 3 of the Contributions and Benefits Act or Part 3 of the Northern Ireland Act;

(c) any element of child tax credit other than the family element, working tax credit, housing benefit or income support under Part 7 of the Contributions and Benefits Act or Part 7 of the Northern Ireland Act;

(d) an income-based jobseeker’s allowance within the meaning of section 1(4) of the Jobseekers Act 1995 (c. 18) or Article 3(4) of the Jobseekers (Northern Ireland) Order 1995 (S.I. 1995/275 (N.I. 15));

(e) disablement pension under Part 5 of the Contributions and Benefits Act, or Part 5 of the Northern Ireland Act, that is payable at the increased rate provided for under section 104 (constant attendance allowance) of the Act concerned;

(f) war disablement pension under the Naval, Military and Air Forces Etc. (Disablement and Death) Service Pensions Order 1983 (S.I. 1983/883) that is payable at the increased rate provided for under article 14 (constant attendance allowance) or article 26A (mobility supplement) of that Order.

(g) personal independence payment under Part 4 of the Welfare Reform Act 2012 or the corresponding provision having an effect in Northern Ireland;

(h) armed forces independence payment under a scheme established under section 1 of the Armed Forces (Pensions and Compensation) Act 2004.

(i) universal credit under Part 1 of the Welfare Reform Act 2012 or Part 2 of the Welfare Reform (Northern Ireland) Order 2015].

(3) In sub-paragraph (2)—

(a)'the Contributions and Benefits Act' means the Social Security Contributions and Benefits Act 1992 (c. 4) and

(b)'the Northern Ireland Act' means the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7).

Meaning of 'qualifying security goods'

For the purposes of items 9 and 10 'qualifying security goods' means any of the following—

(a) locks or bolts for windows;

(b) locks, bolts or security chains for doors;

(c) spy holes;

(d) smoke alarms.

Meaning of 'relevant scheme'

(1) For the purposes of this Group a scheme is a 'relevant scheme' if it is one that satisfies the conditions specified in this paragraph.

(2) The first condition is that the scheme has as one of its objectives the funding of the installation of energy-saving materials in the homes of any persons who are qualifying persons.

(3) The second condition is that the scheme disburses, whether directly or indirectly, its grants in whole or in part out of funds made available to it in order to achieve that objective

(a) by the Secretary of State or Ministers of any of the devolved tax administrations of the UK.

Cases

Insulated roof panels

In Greenspace Limited v HMRC [2021] UKUT 0290the Upper Tribunal confirmed that insulated roof panels were roofing and not insulation. Unlike insulation that could be separately attached to a roof, the panels formed the roof. The supply of panels did not qualify for a reduced rate of VAT.

In HMRC v Pinevale Limited [2014] UKUT 0202 (TCC), the Upper Tribunal found that roof panels installed in conservatories were not energy-saving materials as they constituted a new roof rather than insulation for an existing roof.