‘Strong case’ for solar to retain 5% VAT rate, STA argues

The Solar Trade Association has said that there is a “strong case” for solar technologies to be treated the same as other energy savings materials as HMRC deliberates its consultation response.

After proposing in December to attach the full 20% VAT rate to solar technologies – PV and thermal – from 1 August 2016, HMRC launched a consultation to gather views on the proposals, which closed last Wednesday.

The decision stems from European Court of Justice verdict which ruled that the UK had broken EU VAT directives by offering solar panels a reduced rate of VAT. HMRC originally said it would do all it could to retain the 5% rate, but later concluded it had little choice but to reinstate the 20%.

But while energy generation technologies, of which solar PV and thermal are the most popularly deployed, have been proposed to have VAT increased to 20%, other energy saving materials are being left at 5%.

The STA’s response to the consultation, published last week, says that it does “not see a justification for solar energy being treated differently from the eight other technologies” which have been adjudged eligible to stay on the preferential rate.

The trade association considers that domestic solar fulfils the requirements of both directive clauses (10 and 10a), and that there is a “strong case” for solar to remain on the 5%.

Its response particularly focuses on the distinction between solar PV and solar thermal, two separate technologies which have been banded into the same bracket for HMRC’s consultation. The STA has argued that in generating hot water, solar thermal operates no differently to technologies such as heat pumps, which have been left at the 5% rate.

The STA’s response comes after the Association for the Conservation of Energy considered that there were “reasonable and substantial grounds” to consider installing solar thermal and PV when renovating a property, another condition of qualifying for the lower rate of VAT.

Any increase in VAT will drive up standard installation costs which, in light of prohibitive cuts to the FiT, would have a significant impact on returns on offer. However DECC ministers have suggested the department would be open to revisiting feed-in tariff rates if returns dipped below the 4.8% stipulated in its FiT review.