Green Homes Grant and VAT

In his Summer Economic Update, the Chancellor confirmed that a £2bn Green Homes Grant scheme is to be introduced in September.

This would allow all homeowners and landlords in England to apply for a grant to help cover the cost of upgrading residential properties to make them more energy efficient. Vouchers can be applied for from the end of September 2020 and must be redeemed by 31 March 2021.

The grants will cover two thirds of the cost of upgrades to a maximum of £5,000 for most properties. While this is aimed at a longer-term ambition for a greener future, the shorter-term goal is to help create and retain jobs in the construction sector by providing an additional or increased source of income.

The impact of VAT

When it comes to quoting for work, and ultimately doing the work and billing for it, you will need to know what rate of VAT should be applied. VAT does apply at a reduced rate of 5% for the installation of certain energy
saving materials, but it does not apply to all types of energy saving materials, and it does not apply in all circumstances.

For pricing purposes, and for working out your margins, you will want to know whether you’ll be charging VAT at 5% or 20%, or part at 5% and part at 20%. Getting it wrong can mean the difference between making a
profit and making a loss.

Reduced rate of VAT

Determining when the reduced rate of VAT applies can be a complex area to navigate, and we recommend getting advice on this to a) make sure your forecast margins are right, and b) reduce the risk of future possible assessments from HMRC if you get it wrong.

In broad terms, reduced rating applies to:

  • Services of installing energy-saving materials, including the energy-saving materials installed, for someone over the age of 60 or for someone who is on certain benefits where the installation is in their sole or main residence (“The social policy conditions”), or where this is not met.
  • Services of installing energy-saving materials in residential accommodation, including the energy-saving materials installed, unless the value of the materials exceeds 60% of the cost of the total supply made, in which case it is necessary to charge VAT at the standard rate on the materials. The labour element can still be reduced rated.

What steps should my business take?

There will clearly be an interaction between the Green Homes Grant and the possible application of VAT at the reduced rate. To prepare your business you should:

  • Make sure you are included on the list of accredited suppliers
  • Get to grips with when the reduced rate of VAT applies, so that you:
    • know what you need to ask your prospective customers to determine if the lower rate applies
    • price your quotes appropriately, maximise your margins, and allow your clients to take full advantage of the grant available, and
    • know what information you will need obtain and keep to support the VAT treatment you apply.

Read more on this topic in Issue 16 of our newsletter Real Estate Matters.

Read Real Estate Matters Issue 16

Contact the Tax team at MHA Carpenter Box for more information on this key Government update.