Tax rate hike for domestic solar, storage and biomass boiler markets contested by industry

The Renewable Energy Association (REA) is contesting a proposal by HMRC to increase VAT rates on low carbon technologies such as domestic solar, biomass boilers and battery storage.

The HMRC consultation, which closes today, 3 May 2019, proposes that consumers who wish to install certain domestic ‘energy saving materials’ will be hit by a tax hike from between 5 and 20%. Most household installations of solar panels, biomass boiler and battery storage alongside solar panels, previously benefitted from a reduced rate of 5% VAT.

Concerns are that despite falling costs of solar and lithium-ion battery storage units, this hike in the VAT rate could mean the UK market is put at a strategic disadvantage for attracting investment and transitioning its energy system, effectively adding 15% to the cost of most new projects’ equipment and penalising consumers who wish to reduce their carbon footprint.

In comparison, coal which is sold as a fuel for domestic use is given a reduced VAT rate of 5%.

The consultation closes the same week that the UK Parliament passed a motion to declare a ‘climate emergency’ and the Committee on Climate Change recommended moving the country to ‘net zero’ greenhouse gas emissions by 2050, and contradicts the Government’s commitment to tackling climate change.

The consultation has taken industry by surprise, as these VAT rates were consulted on in 2015/16 and considered to be finalised at the current 5% rate following assurances at the time from ministers. The hike is all the more surprising given that Government’s own analysis shows that it would have a ‘negligible impact’ on financial receipts to Treasury whilst erecting another barrier to low carbon energy deployment.

This negative proposal for the small scale renewable power sector follows hot on the heels of the withdrawal of other key support schemes such as the Feed-in-Tariff.

The REA believes these HMRC proposals could further constrain the empowerment of millions of homes who wish to take action on climate change.

Frank Gordon, head of policy at the REA commented, “The proposed VAT rate hike hits the small-scale renewable energy industry hard during an already difficult landscape. This change risks setting back the UK decarbonisation of homes and businesses in the UK by a number of years.”

In the face of multiple recent climate-related protests – and the UK Parliament declaring a climate emergency – the Government appears to not want emissions to reduce.

Gordon continued, “They are also failing to recognise the cumulative impact of withdrawing as many as 18 policy mechanisms that supported renewable energy deployment since 2015, which could leave the UK trailing behind on decarbonisation and clean growth. The REA hopes that Government will listen to our recommendations, reconsider and address this issue urgently to utilise the hard work businesses have been engaged in to drive down the costs of solar and energy storage.”