Homeowners considering switching to renewables have been urged to act now to beat the increase in VAT on green energy due in April 2016.
The attractive five per cent reduced VAT rate on domestic renewable energy heating installations is due to end with this financial year bringing green heating solutions into the 20 per cent VAT bracket in April.
Leading regional installer Michael Wright, of Yorkshire Heat Pumps, advises those considering going green to make the change ahead of April – or face a bigger bill.
The UK is being forced to abandon the five per cent rate, originally introduced as a sweetener to encourage a move towards sustainability, following a ruling by the European Court of Justice (ECJ).
Michael, of Blubberhouses-based Yorkshire Heat Pumps, said: “This judgment will have an adverse effect on the pockets of UK consumers and could hurt companies like ours which promote uptake of renewable technologies.”
The European Commission first ordered the UK to drop this tax break in 2013, because, it said, the policy does not comply with the EU’s VAT Directive. The basis of the UK Treasury’s appeal later that year was that upgrading homes not only saves emissions and boosts energy efficiency, but also has wider social benefits that justify the reduction.
However, in June this year the ECJ ruled the reduced VAT rate could only apply to transactions related to social housing, leaving the UK government with no option but to pull the lower rate.
Michael added: “The government has introduced a range of measures to help us hit these carbon targets, including the domestic Renewable Heat Incentive scheme, which offers financial incentives to people making the switch from fossil fuels, and the 5 per cent VAT rate, and it is this tax break which is now disappearing.
“The future of domestic RHI is also far from certain, with news expected in the government’s Autumn spending review on whether this incentive will be extended, replaced with an alternative scheme, or nothing at all.
“The sooner people thinking of switching to renewables actually make the change, the more money they will be likely to save. The effect of paying 15 per cent more VAT on a biomass boiler or heat pump could run into thousands of pounds depending on the size of system.”