Her Majesty’s Revenue & Customs has outlined proposals to remove value added tax relief attached to solar panels as of 1 August 2016.
The move comes after an EU court ruling found that the reduced, 5% VAT rate the UK government had attached to ‘energy saving materials’ violated the Union’s VAT directive as they could not be considered a property renovation.
HMRC confirmed in a consultation today that it intends to carve out solar panels – as well as domestic-scale wind and hydro turbines – from the relief, effectively increasing the cost of a standard installation.
The Solar Trade Association stated that the move would add around £900 to the cost of an average 4kW installation and Mike Landy, head of policy at the STA, said that the move required “urgent action” from both the UK government and the European Commission.
“Instead of just accepting the EU ruling HMRC needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the feed-in tariff for solar.
“And we need the European Commission to move quickly to amend EU law so that all renewables and energy efficiency products are guaranteed a reduced rate of VAT. Brussels needs to remember that the EU doesn’t have many practical tools within its power to promote renewables, but rules on VAT is one of them,” he said.
The move comes despite HMRC confirming to Solar Power Portal in July that it intended to implement a “tax lock” until 2020 and ruled out any increases to income tax, NICs and VAT during the current parliament.