Celsius News Item

Explanatory Note :

In 2005 VAT was reduced to 5% on air conditioning heat pump systems if they were supplied and fitted in a domestic dwelling. A recent report by H&V news (reproduced below) indicates that this may be about to change :


VAT row has Green Deal implications

17 July 2012 | By Dennis Flower - H & V News

The 5 per cent VAT rate on energy-saving materials is illegal, the European Commission has told the UK government.

It has ordered the coalition to change British law within two months and will refer the matter to the European Court of Justice if this is not acted upon.

With many in the industry calling for the 5 per cent rate to be extended to include a wider range of HVAC equipment, leading figures have voiced serious concern over this latest development.

“This is really disappointing,” said Building & Engineering Services Association head of sustainability David Frise. “It just seems bizarre to increase the rate of tax on measures designed to reduce consumption of energy.

“I can understand that the European Commission would want to bring everyone into line, but this is the wrong line.

“VAT is a regressive tax that disproportionately penalises the poor, so the UK government should hold fast if it can.”

Builders Merchants' Federation policy manager Brett Amphlett said: “At a time when the BMF has been urging the government to extend the 5 per cent VAT rate to all Green Deal projects, the European Commission's move could be disastrous.

“Any increase in the cost of materials will affect the Golden Rule calculation.”

Swale Heating managing director Mark Pope said his company had already been involved in a disagreement with HMRC over the 5 per cent rate.

“We were advised last year by HMRC not to apply 5 per cent VAT to the sale of any heating or energy-saving products.

“This was the result of a lengthy and costly battle with HMRC over the method of application of reduced rate VAT to individual invoices, which at one stage resulted in our business being threatened with a £700,000 retrospective VAT assessment.”

The issue was eventually resolved but Mr Pope said it showed that VAT notices are too complex and do not provide support to businesses or consumers, adding that EU interference “can only serve to make things worse”.

Green Heat managing director Peter Thom, who launched a petition for the government to include boilers and flue gas heat recovery in the 5 per cent VAT rate last year, says the heating industry is asking the government to ignore the directive.

“It would be a nonsense to increase the VAT rate to 20 per cent on all energy-saving measures and this will be another test for George Osborne and the government to see how close to the real world he is,” he said.

Read the full article on H&V news here