When the installation of energy saving materials is not such a relief…!

Reducing our carbon footprint is a key agenda item for most organisations these days. Whilst new technologies and materials help with new build developments, many providers are faced with significant work programmes to improve the energy efficiency of existing stock.

Usually, VAT is charged at the standard rate of 20% on repairs and improvements to existing properties. However, subject to conditions, the installation of specific energy saving materials should qualify for VAT relief at the reduced rate of 5% – creating a VAT saving on what would ordinarily be an irrecoverable VAT cost. The most common example at the moment seems to be external wall insulation.

Care should be taken to ensure that the relief is applied correctly. We have seen many instances of providers combining works on properties (often achieving resource cost savings through getting several jobs done simultaneously), with the installation of the energy saving materials being an element of such works. Unfortunately, existing VAT legislation does not allow for apportionment of the reduced rate relief. Depending on the specific details of a project the relief may be lost, or potentially more widely available than initially thought.

Early involvement in such arrangements is extremely useful because it may be necessary to change how the works are procured.

In the example of external wall insulation, it may actually be possible to obtain full VAT relief on the works. Please take a look at our separate article on this opportunity.

If your organisation is currently considering or already undertaking energy saving works then please do get in touch with our specialists who will be happy to chat through the potential VAT risks and opportunities.