Spring Statement 2022 – VAT roundup

Energy saving materials for homes

The most significant indirect tax measure announced to assist with the cost of living aims to reduce energy bills at the same time as helping the UK meet its objectives on reducing carbon emissions. VAT on installing energy saving materials in the home is currently set at 20% for all but a very narrow list of people and materials that are eligible for the 5% rate.

From April 2022, the chancellor is reducing the VAT further to 0% for the next five years. At the same time, both the list of materials and the number of homes that will qualify for the zero rate is being expanded reversing a judgement from the CJEU in 2019. The changes mean that VAT is not charged on most energy efficiency projects in homes from April 2022.

This change is only available in mainland UK, however, as the EU rules must still apply to Northern Ireland due to the protocol. So, whilst the chancellor was keen to stress simplifications elsewhere in the tax system, the situation in Northern Ireland (post-Brexit) will still cause headaches for businesses operating both in NI and the rest of the UK.

Any businesses involved in energy saving installations should be ready to change the rate of VAT charged on projects from April. They should also consider any transitional rules for projects that straddle the change. They should also be prepared for customers seeking to delay their projects to take advantage of the potentially 20% reduction in 2 weeks’ time. If you need further advice on what rate you will need to charge your customers, then please get in touch.

Fuel duty cut

One of the measures widely talked about in the run up to today’s announcements has been a cut in fuel duty to address the rising prices at the pump exacerbated by the conflict in Ukraine. Rishi Sunak delivered this with a 5p per litre cut effective from 6pm this evening. This is a cut targeted at a very specific cost of living increase being felt at the moment by drivers and will be welcomed by most.

Business Rates

With the temporary reduced rate of 12.5% coming to an end at the end of this month, the hospitality industry must content themselves that April sees a new 50% relief on business rates for retail, hospitality and leisure outlets. This is aimed at helping the high street weather the move to online shopping during the pandemic. The Treasury have also already announced a consultation on an online sales tax to also level the field between online and physical retail. We will have to wait to see the outcome of that in a future budget.

Andy Turner, Audit & Business Advisory Partner said “This business rate announcement will be welcomed by the hospitality, leisure and retail sector. As, unfortunately,  the challenges of the last two years are not going away with staff shortages and the rising costs of utilities.”

If you would like assistance regarding the complexities of VAT and indirect taxes please do not hesitate to contact me.