The European Commission has set out new reforms which the solar industry hopes could lead to the UK retaining the reduced VAT rate for PV panels.
The new Action Plan on VAT intends to reduce the administrative burden for businesses and give “more autonomy” to Member States in how they grant lower rates of VAT.
That would be done through setting a broader EU-wide list of products to which reduced rates can apply or give national governments the power to set their own reduced rates of VAT.
Last December HMRC proposed to increase tax on energy saving materials, including residential solar, from 5% to 20% after a ruling by the European Court of Justice that the UK’s lower rates were not in line with EU rules.
A number of Tory MPs backed Labour’s move to block the tax increase last month.
The Solar Trade Association (STA) said while a cross-party amendment to the budget last month led to positive statements from senior ministers ahead of the EU VAT reform on retaining the low VAT rate, t it has not been able to get confirmation of the decision from the Treasury.
Head of External Affairs Leonie Greene added: “The domestic solar market is undergoing challenging adjustments and both the industry and householders need to know that there will be no unfair increase in solar VAT. What we need now is a clear statement from Treasury to confirm the industry can count on the positive statements already given by Ministers.
“It would be a nonsense to impose VAT on solar at 20% while retaining 5% for grid electricity, gas and oil. The EU decision today shows a clear intention to increase flexibility for member states on VAT decisions. Post the Paris Climate Agreement, the political priorities the EU says will inform the new VAT regime will surely include the need to rapidly decarbonise our energy supply.”
The STA estimates the VAT increase to 20% would add £900 to the cost of a typical residential solar PV installation.