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5% VAT Updates from October 1st

5% VAT Updates from October 1st

Changes in 5% VAT due to take place on October 1st for biomass and renewable energy installations.

Fitting Only:
The end user or installer will always purchase from the retailer at 20% VAT.
A VAT registered fitter will always charge 5% VAT on labour when installing an eligible product, even if the end user has purchased the materials themselves from a retailer.

Supply and Fitting:
A VAT registered fitter will always charge 5% for labour.
The VAT registered fitter will then either charge 5% VAT or 20% VAT on the eligible product and ancillary materials depending on the NEW 60% test:

The fitter must first establish the price that they paid their suppliers to purchase the materials (excluding VAT) used in the installation. This is the fitters price from the supplier. (eg. Roger Renewables purchasing from Firepower)

They then calculate this as a percentage of the total value of the invoice for their client (excluding VAT). (ie Roger Renewables invoice to their customer).

The materials that must be included in this calculation are all of the goods supplied to the customer as part of the installation which remain in place once the job has been completed.


The 60% Test
If the amount the fitter paid for the product and ancillaries is under 60% of the total invoice to their client, the entire invoice can be calculated using 5% VAT.

If the amount the fitter paid for the product and ancillaries is over 60% of the total invoice to their client, the invoice to their client for labour is charged at 5% VAT but the materials are charged at 20% VAT.


Example 1
Roger Renewables fits a Klover Ecompact 290 wood pellet boiler for their customer. The cost of the materials that are directly concerned with the installation (ie Klover boiler, flue pipe, Thermalux, heating controls, load valves etc) paid by Roger Renewables to their suppliers was £5,500 ex vat. The labour charge was £3,000 ex vat. Including their mark up on the ancillary materials, the total invoice to the client was £12,000 ex vat.

60% of £12,000 is £7,200, so the materials cost less than 60% of the job.

Therefore the whole invoice to the client (labour and materials) is charged at 5% VAT


Example 2
Roger Renewables fits an ETA PC32 boiler for their customer. The cost of the materials that are directly concerned with installing the eligible product (ie ETA boiler, flue pipe, Thermalux, heating controls, load valves etc) paid by Roger Renewables to their suppliers was £9,750 ex vat. The labour charge was £3,000 ex vat. Including their mark up on the ancillary materials, the total invoice to the client was £16,000 ex vat.

60% of £16,000 is £9,600, so the materials cost more than 60% of the job.

Therefore on the invoice to the client the labour is charged at 5% VAT but all the materials are charged at 20% VAT


You can see the government's full 'VAT on energy' report using the link below:
https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086

Please contact David on 01803712143 if you have any questions regarding these changes.

Kind regards,
Firepower Team