EC action plan bodes well for solar VAT reduction

The European Commission has published an Action Plan on value added tax (VAT) which the solar industry hopes will support Ministers intentions to reduce VAT on solar panels
EC action plan bodes well for solar VAT reduction

The EC intends to give national governments more automony in how they grant lower rates of VAT. The European Union (EU) executive has proposed two possible options on how to do this, the first of which is to set a broader EU-wide list or products eligible for reduced rates, and the second being a plan to give national governments to set their own reduced rates of VAT. Both options will result in greater flexibility on VAT.

Last month, a cross-party amendment to the budget led to positive statements from senior Ministers such as Energy Secretary Amber Rudd and Treasury Minister David Gauke, ahead of EU VAT reform, suggesting that the UK would retain the low 5 percent rate of VAT for solar. However, the STA has been unable to get confirmation of the decision directly from the Treasury.

“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” said Leonie Greene, Head of External Affairs for the STA. “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 percent while retaining 5 percent 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 Commission’s communication describes how the EU VAT Directive is ‘becoming obsolete’ and how it has led to the Commission having to take over two-thirds of EU countries to court in what they call ‘unnecessary litigation’. One such case is the European Court of Justice ruling that the UK’s rules on VAT on energy products were not in line with EU law, which triggered the proposal from HMRC last December to increase VAT on residential solar from 5 percent to 20 percent, a proposal which the STA does not agree was necessary. The STA has estimated that this increase would add £900 to the cost of a typical residential solar PV installation and has been pushing for the government to reconsider.

For additional information:

Solar Trade Association (STA)


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