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Whilst most of the services of VAT registered plumbers and gas engineers in buildings (other than new dwellings) are subject to the full 20% rate of VAT, some work can be charged at the lower 5% rate where, for example, it qualifies as an installation of ‘energy saving materials.’  This could be the supply and installation of most kinds of insulation, thermostatic radiator valves, solar panels and certain types of boilers – namely those fuelled by wood, straw or similar vegetal matter.

Some schemes have been quite widely marketed under which the installation of a central heating system (using a standard boiler as opposed to one of the above examples), which also includes energy saving goods, could be subject to a reduced rate of VAT.  In effect, the total price of the installation is split between the full and lower rates of VAT, to take account of the energy saving goods forming part of the overall installation.  In some cases, a fee is paid depending upon the VAT purportedly saved.

One such scheme, a ‘VAT Optimiser’ was recently tested in the Tax Tribunal.  In this case, the tax payer used a piece of software to split the charges for the installation of a heating system into what were considered to be two categories – one for the supply and installation of energy saving materials, considered to be subject to the lower rate of VAT, and the balance for the predominant part of the work, unquestionably chargeable at the full rate of VAT.

The Tribunal (apparently with a degree of regret), found that there was in fact only one overall supply being made, rather that two distinct supplies each with their own VAT rate.  It was decided that the single supply was subject to VAT at the rate of the overriding supply (in this case, the installation of a central heating system) – i.e. at 20%.

Whilst the decision might be appealed, we wanted to bring it to the attention of companies which could be effected by this.  It will of course be the taxpayer (in this case the installer) who will be expected to make up any shortfall in VAT paid plus, almost invariably, interest and penalties.

Please don’t hesitate to contact us if you’d like any more information on VAT returns this or have any questions.


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