VAT update on energy saving materials and fire remediation works

RSM provide an update on fire remediation works and energy saving materials following the Autumn Statement, and outline our engagement and next steps with HMRC.

Energy saving materials (ESM)

The Chancellor of the Exchequer’s recent Autumn Statement did not deliver on some important elements – despite the sectors engagement with the 2022 Consultation, as well as separate representations as part of this year’s budget process, including the sectors request that consideration be given to extending zero rating relief to double and triple glazing. These forms of home improvements significantly reduce heat loss and resultant carbon emissions, as well as help to reduce fuel poverty. A missed opportunity to improve the lives of many residents.

The extension of the ESM VAT relief to charities was much heralded but the ability for charities to benefit from the relief has been restricted to only those buildings that are used for a relevant charitable purpose. Given that many charity activities fall within the scope of VAT, including those of registered providers, many will be asking why the Chancellor made these changes.

Further, many housing associations are still struggling to utilise the reliefs that are available. The ESM works are usually delivered as part of a larger refurbishment programme to minimise disruption to residents as well as achieve economies of scale. Where this is the case HMRC are insisting that it is a single supply of refurbishment works subject to VAT at 20%.

Through its membership of the Land and Properties Liaison Group, the NHF intends to submit a detailed analysis for HMRC’s consideration as to why such works should be viewed as mixed supplies with the ESM installation qualifying to be taxed at the zero rate. We hope to be able to provide a positive progress update in the new year.

Fire remediation works

HMRC’s U turn in relation zero rating relief for fire remediations works is now beginning to bite across the sector. We expect guidance to be issued imminently, however it is likely to reaffirm that zero rating will only be available in limited circumstances and that most fire remediation projects will be subject to VAT – 20%. To compound the issue further HMRC are now contending that fire remediation costs are non-business expenditure (unless the developer has signed the Department for Levelling Up, Housing and Communities pledge), with the VAT incurred being an irrecoverable cost. Housing associations are not required to sign the Pledge – so where does that leave the sector?

A number of members are in dialogue with RSM with a view to pulling together a fighting fund to challenge HMRC’s interpretation of the VAT legislation. Please contact Audrey Fearing if you would like to be part of this group.

RSM is a leading provider of audit, tax and consulting services, with around 3,800 partners and staff in the UK. We're working with our tax advisors RSM to help shape government policy on taxation as it affects the sector and to keep housing associations informed of key issues.