The Department of Energy and Climate Change has refused to comment on whether yesterday’s confirmation that 20% VAT will be applied to solar panels will have any impact on revised feed-in tariff rates emerging from the consultation.

The UK solar industry still awaits DECC’s response to the consultation which could see FiTs for small-scale installations cut by as much as 87%. New rates are widely rumoured to be published next week, however yesterday’s announcement by HMRC has put more pressure on the government to bow to pressure and implement rates higher than those proposed in August.

With VAT set to rise from the 5% relief rate to 20%, the cost of a standard rooftop solar installation is set to rise by as much as £900 – significantly affecting the desired hurdle rate on which Parsons Brinkerhoff designed its consultation. The proposed rate of 1.63p/kWh would not deliver the 4% return argued by government to be sufficient for solar installations once the new rate of VAT comes into force on 1 August 2016.

While several consultation responses are understood to have raised how panel prices could be impacted by factors such as possible VAT increases and the EU's minimum import price on Chinese products, a DECC spokesman could not comment on whether or not this factor would be taken into account when the new rates are formalised.

A government spokesman said: “The government remains committed to improving UK homes to help tackle fuel poverty and keep energy bills low.

“Despite the EU’s ruling we will continue to help the most vulnerable, such as the elderly, with the installation of energy saving materials, by retaining the vast majority of the energy saving materials relief.”

The government has been widely condemned for passing down the directive, but HMRC’s hands have effectively been tied by the European Court of Justice’s ruling in June. The government could not appeal the verdict and while an HMRC spokesman told Solar Power Portal in June the department was “considering its options”, it’s understood little could be done in light of the ECJ’s decision.