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15th March 2022

Partner Insight: Calls for VAT reductions on Energy Saving Initiatives

As Energy costs rise – Calls for VAT reductions increase on Energy Saving Initiatives

Construction businesses, as well as our Housing Association network, seem to be increasingly busy with Retro Fit projects for housing insulation – a lot of which is supported by government funding to assist those at risk of fuel poverty. It is interesting to see increasing press commentary in the energy industry news about the benefits to ensuring a reduced VAT rate is applied more widely across such projects and it’s surely an aspect which the Chancellor is being encouraged to look at for his forthcoming Budget on the 23rd March.

All of this reflects the pressure on energy costs for households as we feel the impact of rising gas and electricity prices. However, it also reflects the VAT complexities around the whole area of supply and installation of energy saving materials. The UK, whether at a household level or as a business community, is striving to work towards actions to support the Net Carbon agenda. However, taxation questions put the issue into the political context as well, with any call for VAT rates to be reduced on energy improvement works to be matched against the loss to central revenue of that taxation. Some would argue it better to retain the VAT rates and then use that tax revenue to provide the funding to support people most affected, in more targeted ways as energy prices rise.

Here at Centurion we are closely involved in all matters VAT related but the VAT issues that affect these Retro Fit projects are bringing some specific questions to the forefront. We would certainly encourage development teams and project managers in the housing association space and those construction firms that supply into this market – a highly VAT sensitive sector – to be aware of making too great an assumption that the VAT rate of 5% will apply. That may well be the case on narrowly scoped energy-saving refit projects but all too often these projects encompass a range of works not just the specifics of the supply and installation of the required energy saving materials themselves.

Grants for housing associations to go out and simply buy the energy saving materials they themselves will install will attract the 20% VAT rate and not qualify for the exisiting VAT Reliefs – as noted the existing VAT reliefs are narrowly drafted, could that be an aspect to widen in itself?

We are having on-going discussions with HMRC on the VAT issues around these projects. Perhaps industry lobbying for a zero VAT rate across a wider application will bear fruit in the Budget, but until that point we’d encourage both construction firms and affected VAT sensitive customers, to work through the VAT costs thoroughly when bidding for grant funds from government bodies to ensure the VAT impact on such budgets is fully understood – by both the funder and the recipient.

Increasing levels of energy costs seem to be here to stay for the moment but the levers in the hands of government to use VAT rates to reduce such costs do exist – whether that is in the context of fuel prices at the pumps, electric vehicle rates at charge points or on major insulation projects for housing stock – lower VAT rates and a broader application of existing reliefs would be very welcome therefore from the Chancellor on the 23rd March.

Centurion VAT – here for when VAT gets complicated  – emailus@centurionvat.com or get in touch with your usual Centurion VAT contact.

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