A UK exchequer decision to impose revoke a 5% Value Added Tax (VAT) rate on the ‘supply and installation of energy-saving materials’ in residential buildings has come under scrutiny from Delta-ee, which has run an independent analysis looking at the customer and long-term market impacts of a potential increase of VAT on low carbon products to the standard 20% rate.
‘From our analysis it is clear that if a standard rate of VAT is applied to low carbon heating products, an already challenging market will become more difficult,’ says Steven Ashurst, Research Manager of the Microgen Insight Service at Delta-ee.
‘For low carbon products, an increased rate of VAT of 20% typically adds more than £1000 to the end user cost, which for GSHP [ground source heat pump] and micro-CHP sees a drop in customer willingness to pay of more than 50%. Our primary research consistently shows that upfront costs are a major barrier to low carbon technologies,’ Ashurst concludes.
Delta-ee forecasts that under a scenario where a 20% VAT rate is applied to air-source and ground source heat pumps, biomass boilers and mCHP, the combined annual sales would reach around 60,000 units per annum by 2025, 40% less than compared to the 5% VAT rate.
In June 2015, the European Court of Justice ruled that the UK has incorrectly applied the 5% VAT rate to lower carbon heating products such as heat pumps, micro-CHP and biomass boilers.