Zero Carbon really does equal zero VAT after campaign success

Zero Carbon really does equal zero VAT after campaign success

There has long been an issue surrounding the unfair treatment of VAT on retrofitting, energy efficiency and domestic renewables and a call to bring this into line with the same tax rules for new builds. It always seemed unfair that to conduct improvements to your home around basic energy efficiency measures, which would lower bills and CO2 emissions could be subjected up to 20% VAT. Another reason was that VAT seemed to be an obvious route while considering lowering the cost of buying and installing heat pumps (which are a mature technology). We wanted to make sure that barriers to conducting energy efficiency measures, retrofitting and installing domestic renewables were removed and VAT was a big one. 

MCS Charitable Foundation (MCS) and our partners at the National Energy Foundation, The ADE, EEIG, The Climate Coalition, FMB, SEUK and others, have all supported and helped us call for a removal of VAT on energy efficiency and domestic renewables. In 2019 the VAT rates were changed and a new complex system was introduced after a European Court of Justice ruling was imposed. The new rules contained a few limited social exemptions and a complex 60/40 rule that left installers uncertain regarding what levels to charge. What is more, if installers’ calculations ended up wrong they would be left liable for any outstanding VAT.   

MCS led the way with the analysis of the tax rules, writing to the Chancellor, lobbying MPs and securing growing cross-party support, which led to an Early Day Motion being tabled by Tim Farron MP. We gave evidence in front of the Environmental Audit Committee and recommendations were made by the chair Rt Hon Philip Dunne MP to zero VAT on domestic renewables and energy efficiency measures. Though we had good support across Government we needed a strong business case to persuade the Treasury that this would have a positive impact. MCS commissioned Tait-Walker VAT experts, many of whom had worked for the Treasury and compiled a comprehensive case, with examples, exemptions and regulations, as well as costs in lost revenue and benefits. 

It was this report in conjunction with strong cross-party support and the Environmental Audit Committee recommendations that started making headway. In the end, MCS arranged a photocall outside the Treasury and sought to deliver the report in a new and different way with replica dispatch boxes to each Treasury Minister. We had a press photographer and were granted permission from the Treasury to be on the steps for which I’d like to thank the brilliant staff at the Treasury who we met on the day. 

After nearly two years of campaigning, we achieved was a brilliant result, which was supported by the Treasury. The fact that we had left the EU and had the power to set our own VAT rates was vital. In real terms, this tax change means that the average heat pump installation came under the 60/40 rules e.g that more than 60% was material so charged at 20% VAT and that labour would be 5%.  The end result of the tax change means that buying and installing a heat pump could be as much as 17% cheaper for consumers at home and will help the Government deliver more than 600,000 heat pump installations every year by 2028.

It goes to show that partnership campaigns, with strong cross-party support in Parliament, can really achieve success. Once again I want to thank everyone who was involved in making this such a successful campaign. I would also like to thank the Chancellor, Ministers and HM Treasury officials who acted on the evidence and made the changes to our VAT system. We hope that the zero-rating will continue after five years and that the installation of renewables and retrofitting numbers will show how successful this policy change was.