ACE makes the case for solar systems to retain 5% VAT rate

  • solar thermal

    ACE claims integrated solar panels and solar thermal qualify as renovation materials and should retain a 5% VAT rate.

The Association for the Conservation of Energy (ACE) has criticised the government’s plans to exclude solar from the lower rate of VAT assigned to energy-saving measures (ESMs) as part of its response to an EU court ruling.

The European Court of Justice ruled early last year that the current rate of 5% violates the EU’s VAT Directive, insisting that the full 20% be paid on all ESMs. In response, HM Revenue and Customs released a consultation in December outlining proposals to keep the tax relief on all measures, with the exception of power generators such as solar panels, wind turbines and water turbines.

Its reason was that these technologies could not be considered to ‘renovate’ a property, which serves as a condition of qualifying for the lower rate of VAT.

However, in its response to the consultation, ACE claims there are “reasonable and substantial grounds to consider solar thermal and solar PV in certain cases”, such as when integrated solar panels are used as a roofing material.

The response also draws attention to the use of solar thermal systems as an integral part of a property’s heating system. With other technologies providing heating services – such as  heat pumps, biomass boilers and micro-CHP – being considered as renovation solutions, ACE questions why solar thermal has been excluded on this basis.

It has therefore argued that these systems should be subject to the same conditions as the other technologies eligible for tax relief, which can be applied to private dwelling projects assuming the cost of materials does not exceed the cost of installation.

ACE has also questioned how the implementation of a ‘qualifying person’ social policy test would be carried out. Under the government’s plans, the reduced rate can be applied where the person for whom they are doing the installation is aged 60 or over or in receipt of one of nine different benefits.

ACE criticised the test, claiming installers are not likely to be able to ask the relevant questions while homeowners may not feel comfortable revealing such personal information, assuming they even know that this would make them eligible.

Jenny Holland, head of ACE's parliamentary team, explained to Solar Power Portal when the consultation was launched: “I have a big question over the operability of that bit, not least because it’s a hell of a lot easier to slap the 20% rate on, mindful of the fact that extremely few people on these qualifying categories will be likely to know that they are eligible.”

The consultation closed yesterday and if implemented as originally proposed, the changes would come into effect on 1 August as part of the Finance Bill.

In a statement released to SPP, the government department said: "HMRC is currently considering the responses received from the consultation that recently closed."

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