Additional VAT Pressure On UK Solar Industry
More misery for the solar industry as the the treasury unveils new proposals to increase the rate of VAT on solar installations to fall in line with European law.
Currently residential homeowners pay 5 percent VAT when installing as opposed to the 20 percent VAT on other goods.
The Government proposes to increase this to 20 percent, adding around £900 to the cost of a typical 4kW solar installation, which is currently approx. £6,000.
Under EU legislation, the UK is permitted to have up to two different reduced rates of VAT. Currently, the UK has just one reduced rate at 5 percent, this being the lowest rate permissible.
However, the European Court of Justice ruled the UK Government applied the relief too widely by failing to restrict the benefit to certain social groups or those with certain social needs.
In line with the CJEU's judgment, the Government has now announced it intends to amend the relevant legislation in the Finance Bill 2016. The Government claims its decision is designed "to retain as much of the relief as possible whilst ensuring that UK law is fully compliant with EU law".
The reduced rate will continue to apply as it does now to supplies made to people living in dwellings who have a social need, to supplies made to "˜relevant housing associations' and to installations in all buildings used solely for a relevant residential purpose.
Mike Landy, Head of Policy at the Solar Trade Association commented:
"This requires urgent action from both the UK Government in London and the European Commission in Brussels."
"Instead of just accepting the EU ruling HMRC needs to push back and argue for solar to keep its reduced VAT rate. The Department of Energy and Climate Change and the Treasury also need to take this massive hike in end prices into consideration in their imminent decision on how far to cut the Feed-in Tariff for solar."
"And we need the European Commission to move quickly to amend EU law so that all renewables and energy efficiency products are guaranteed a reduced rate of VAT. Brussels needs to remember that the EU doesn't have many practical tools within its power to promote renewables, but rules on VAT is one of them."
The proposal is for this change to come into force on 1 August 2016.
The final decision on Feed-in Tariffs for solar is expected later this year "“ and possibly next week "“ although it could also be postponed to January 2016.
The Department for Energy and Climate Change is currently proposing to cut the tariff for domestic solar by 87 percent from 12p/kWh to 1.63p/kWh. The Solar Trade Association has been calling for 8p/kWh in its £1 Emergency solar rescue plan. However initial analysis by the Solar Trade Association suggests that taking this proposed hike in VAT into account, Feed-in Tariffs would need to be raised back up to 12p/kWh to get the same payback on investment for homeowners.
This news on VAT follows the announcement over the weekend that EU price controls and import tariffs on solar panels imported from China are to continue into the near future, accounting for about £380 of the cost of a typical domestic install. The Solar Trade Association is calling on the European Commission to drop the price controls, which it says are artificially and unnecessarily inflating the price of solar PV in the UK.
