Energy bodies urge HMRC to scrap proposed VAT changes

Trade associations representing the smart power industry have written a joint letter to energy minister Claire Perry and financial secretary to the Treasury Mel Stride calling for proposals to raise VAT on certain energy-saving materials to be scrapped.

The letter, signed by organisations such as the Solar Trade Association (STA), the Association for Decentralised Energy, the Sustainable Energy Association and the Heat Pump Association is in response to proposals to change rates on low-carbon technologies from a reduced rate of 5 per cent to the typical rate of 20 per cent.

The proposals only apply in circumstances where the cost of the materials exceeds 60 per cent of the total cost of the installation.

The joint letter claims that evidence from across the sector suggests that if the proposals are implemented they could lead to “bankruptcies and job losses”.

If the proposals are not scrapped, the letter calls for the threshold for material costs to be raised to 85 per cent, easing the impact on the UK’s “nascent battery storage and other smart power technology markets”.

According to the STA installations typically consist of two elements; materials and labour. Solar has an “exceptionally high requirement” for skilled labour, it said.

The association said that although as the proposals stand most solar-only schemes will “comfortably” fall below the 60 per cent threshold, the most cost-effective collective purchase schemes, as well as the more premium schemes such as those with smart technologies, are at risk.

The STA added there is also a “significant risk” to installations of solar and battery storage as the material costs will likely often be over the 60 per cent threshold.

STA director of advocacy and new markets, Léonie Greene, said: “We are deeply unhappy with these VAT proposals which fly in the face of the recently declared climate emergency.

“While the bulk of solar-only installations will not be affected, collective purchase schemes and combined solar and battery storage schemes may be put at significant risk.

“This is particularly perverse when the government is backing a smart energy system, which would see homes with storage helping to support the grid, saving the UK vast amounts of carbon and money.

“We are working with MPs from all parties to pressure BEIS and HMRC to see sense. At a time when the urgency of tackling climate change and decarbonising our economy is unquestionable, and people want to take action, government must bring down barriers to climate action, not put more up.”

In response HMRC said the government’s proposed changes would keep as much tax relief as possible for energy-saving materials while ensuring the UK rules are in line with EU law.

Last week the Renewable Energy Association (REA) also hit out at the proposals, claiming they risk setting back the decarbonisation of UK homes and businesses by a “number of years”.

Frank Gordon, head of policy at the REA, said: “Despite recent mass climate-related protests and the UK parliament declaring a ‘climate emergency’, the government is again erecting a barrier to cutting emissions and increasing the costs for households who want to help.

“They are also failing to recognise the cumulative impact of withdrawing as many as 18 policy mechanisms that supported renewable energy deployment since 2015, which could leave the UK trailing behind on decarbonisation and clean growth.

“The REA hopes that government will listen to our recommendations, reconsider and address this issue urgently to utilise the hard work businesses have been engaged in to drive down the costs of solar and energy storage.”

The Department for Business, Energy and Industrial Strategy (BEIS) has been contacted for comment.