Domestic solar installations could be subjected to large VAT hike

A Government proposal could mean that an increase in the level of VAT applied to solar panels in UK homes is soon introduced.

The rate would rise to 20 per cent from the current five per cent, which reportedly represents a £900 increase in the cost of implementing an average home-based solar project, according to the Solar Trade Association (STA).

HM Revenue and Customs (HMRC) suggested that the tax rise could also apply to other green energy installations such as wind farms and turbines, following an EU ruling earlier this year.

However, despite widespread criticism regarding the costs, the Treasury has stated that the financial impact on households is likely to be very minor.

Other schemes such as installation of insulation or draught strips for windows and doors will still qualify for the five per cent VAT rate.

This summer, an EU court ruling concluded that the UK’s five per cent VAT rate for solar and other energy products was illegal because it ignored the EU’s directive which only allows the low rate if work carried out can be classed as property renovation.

Mike Landy, STA’s head of policy, said HMRC should “push back” against the ruling.

Following the Paris Summit on climate change, campaigners have also criticised the fact that the new move would actually discourage people from harnessing renewable energy, meaning that the country will be less likely to meet its ambitious carbon reduction targets.

A deadline of 3rd February 2016 has been set for the consultation on the VAT increase and, if approved, the new rate could come into effect on 1st August 2016.