VAT on energy products

There is a low (5%) rate on some energy saving products - the rules are complex to say the least and mainly relate to installers, and even the ratio of labour and parts matters. Heck, apparently, it matters if the customer is over 60 (which my wife is, so yay!).

The chancellor reduced VAT to 0% from 5% from 1st April with very little notice.

On a political point, this is batshit insane - the reduction will not help a single person that is struggling to pay their energy bills. You need to have the capital (or be able to get a loan) to install solar, etc, which won't pay back for years. That is no help to anyone on the bread line whatsoever. Even then, the result of this may simply be installers increasing prices and no saving to the customers at all!

The way the rules work means that even those that can manage a small amount now and then to make a DIY solar install and save some money are not helped as they end up paying the normal 20% VAT for the kit.

So this brings up VAT rules, and the rate that applies. It all comes down to the tax point - the date that applies for VAT purposes. This dictates which VAT rate applies when VAT rates change.

We saw a lot of this and some detailed discussion when VAT rates increased last time. This is the first time I personally have seen a decrease, and it raises some interesting points.

The tax point is based on several things. The simplest is the invoice date. But if there is a payment before that, or the work was done more than a few weeks before that, then the tax point moves back to that point. This means the tax point can be moved earlier just by raising an invoice or making a payment, even with long payment terms, but the options to move it later are limited.

However, good news!

There are special rules for VAT rate changes!

These mean that the usual rules that pull back the tax point to the earlier invoice or payment do not have to apply. If the supply is on/after 1st April then the supplier can use the date of supply as the tax point and so charge 0% VAT.

This is down to the supplier. All they have to do is credit note the 5% invoice and issue a new 0% invoice. Simple paperwork exercise.


  1. I'm pretty sure the VAT cut is just political posturing intended to throw a bone to the green lobby, who might otherwise be up in arms about things like the reduction in fuel duty (which actually WILL help with people's bills, albeit only slightly).

    Financially it makes no sense whatsoever to install expensive heat pumps while electricity prices are skyrocketing — even if they are more efficient than electrical resistance heating, they are not going to be more cost-effective than gas heating as long as our electricity is generated primarily from burning that same gas. Installing solar panels in the UK sounds more like the punchline of a joke than a serious energy solution.

    It seems that the threatened outbreak of WW3 has finally woken our political elites to the need for a secure and reliable source of domestic electricity, but even if they greenlit another 100 nuclear power stations tomorrow, it would be twenty more years before we saw any results.

    1. The solar panels do pay for themselves in just a few years now.


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