As part of Spring Budget 2023, the government has launched a call for evidence seeking views on reform of the VAT relief for energy saving materials (ESMs). The aim is to enable the relief to meet its intended objectives more effectively across the whole of the UK.  

Current position

Relief from VAT is currently available in the UK for the installation of certain specified ESMs. This includes a zero rate in Great Britain (currently available until 31 March 2027) for the installation of ESMs in residential accommodation. The supply of ESMs without installation is subject to the standard rate.

In Northern Ireland, the installation of certain ESMs in residential accommodation is subject to the reduced rate, although additional conditions apply. Subject to the ratification of the Windsor Framework, the VAT treatment of the installation of ESMs in Northern Ireland will be brought in line with the VAT treatment in Great Britain.

Call for evidence

The call for evidence seeks views on the inclusion of additional technologies within the relief. The primary technology being considered is battery storage, but the consultation also asks for views on whether any other ESMs should qualify. The current list of ESMs is contained in an annex to the call for evidence.

Second, the call for evidence asks for views on whether the relief should be extended to cover installations of ESMs in buildings intended solely for a relevant charitable purpose. This would be a reintroduction as the relief covered charitable premises prior to August 2013.

Objectives of the relief

The key objectives of the relief are:

1. Improving energy efficiency and reducing carbon emissions
   The primary purpose of any technology included in the relief should be to reduce demand for energy derived from fossil fuels. This could include onsite production of energy (eg, solar panels or a wind turbine), or improving the capability to retain or preserve energy within a property (eg, battery storage or insulation).
2. Cost effectiveness
   The tax relief should be cost-effective. The reform should change consumer behaviour without incurring a significant fiscal cost.
3. Alignment with broader VAT principles 
   Any expansion of the relief should not introduce uncertainty or additional complexity.

Next steps

ICAEW’s Tax Faculty intends to respond to the call for evidence and would welcome input from members. If you have any views on the consultation, please contact Ed Saltmarsh.

Further reading:

• Call for evidence: VAT energy saving materials relief – improving energy efficiency and reducing carbon emissions - GOV.UK (www.gov.uk)
• Energy-saving materials and heating equipment (VAT Notice 708/6) - GOV.UK (www.gov.uk)