Are you a builder, electrician, Gas Safe installer, renewables engineer or a Ref.com registered installer, repairer or supplier of air conditioning units? Did you know that air conditioning units are eligible for reduced rate VAT if they’re supplied for a qualifying use? Here we will explain the basics of how the reduced rate of VAT could apply to you, your business and your customers!
The government is keen to encourage energy efficiency as part of the Climate Change Programme and the Kyoto Protocol. With residential properties accountable for a quarter of all energy emissions, the only way for the UK to meet its obligations under Kyoto is for the government to encourage the uptake of lower cost, energy-saving solutions, including air source heat pumps and other air conditioning and refrigeration units. HMRC has decided that one way to help consumers make the right choice is to provide a tax incentive in the form of reduced VAT on modern air conditioning and refrigeration units, such as air source heat pumps to residential customers.
So long as they are for residential or charitable use air conditioning units supplied for use in:
- houses, flats or other dwellings
- armed forces residential accommodation
- children’s homes
- homes providing care for the elderly or disabled, people with a past or present dependence on alcohol or drugs or people with a past or present mental disorder
- institutions that are the sole or main residence of at least 90% of their residents
- monasteries, nunneries and similar religious communities
- school and university residential accommodation for students or pupils
- self catering holiday accommodation
The following are treated as part of the same residential unit:
- buildings such as garages used with houses
- subsidiary buildings situated a short distance away, such as a garage in a block located away from a house
- corridors, lifts, hallways and stairways in a residential unit
The reduced rate does not apply to the supply of air conditioning units in hospitals, prisons or similar institutions, hotels or inns or similar establishments.
- You supply an air conditioning unit to a private home. You must charge the reduced rate of VAT.
- You supply an air source heat pump to an office building. You must charge the standard rate of VAT
- You supply an air source heat pump to a village hall. You must charge reduced rate of VAT
- You supply an air source heat pump to a shop. You must charge the standard rate of VAT.
- You supply an air conditioning unit to a hospital. You must charge the standard rate of VAT.
- You supply an air conditioning unit to a care home for the elderly or disabled. You must charge the reduced rate of VAT
- You supply an air source heat pump to a pub and hotel. You must charge the standard rate of VAT.
You can also reduce the rate of the repair or maintenance of air conditioning units that are for a qualifying use.
- You repair an air conditioning unit in a children’s home. You must charge the reduced rate of VAT.
- You repair an air source heat pump in a leisure centre. You must charge the standard rate of VAT.
- You conduct scheduled maintenance on an air conditioning unit in a care home. You must charge your customer the reduced rate of VAT.
- You conduct scheduled maintenance on an air conditioning unit in an office building for a business. You must charge the standard rate of VAT.
If you supply, repair or maintain an air conditioning unit to a multiple use building and 60% of the building falls under qualifying use for reduced VAT then the whole supply will be at reduced rate. If the qualifying use is less than 6% then is then the VAT rate can be apportioned.
- A large building containing flats, but also a small convenience store on the ground floor, has a central air conditioning system installed. The small convenience store is 3% of the buildings footprint and is not a qualifying use. 97% of the building is blocks of flats. 100% of the cost of the air conditioning unit is liable the reduced rate VAT.
- A large office building has a central air conditioning system installed. The system breaks down and you are contracted to repair the unit. The building is 65% businesses and 35% occupied by a charity which is a qualifying use. The repair cost can be apportioned. 65% is liable for standard rate and 35% is liable for the reduced rate of VAT.
- A home has an air conditioning system installed and the owners hire you to carry out regular maintenance on the system. There is also a small business run from the home in a home office with 3 employees. The office is 15% of the floor area of the building. The maintenance costs is liable for the reduced rate of VAT.
Understanding these rules can provide a powerful marketing tool to potential customers, showing them the savings that they can make by using your products and services. With standard rated VAT now at 20% the reduced rate of 5% can provide a substantial saving to your customers. And, as maintenance and repair are also reduced rated for these products the savings are ongoing.
- A wall-mounted air source heat pump costs £1800 to supply and install to a business at standard rated 20% VAT, but for a residential property, the homeowner only has to pay the 5% reduced rate of VAT and so only pays £1575 for the same supply and installation, saving them a hefty £225.
- A residential customer has a yearly maintenance service on their air source heat pump. The service costs £60 plus VAT. For the residential customer, this is means the service costs them £63. The cost to a business customer is £72 for the same service.
If you need further advice about this, or any other VAT or accountancy issue why not contact our team at Together We Count? Email firstname.lastname@example.org or call on 01273 569 088 / 0114 4000 119 for more information about how we could help you and your business!
In preparing this article we here at TogetherWeCount.co.uk have endeavoured to offer current, correct and clearly expressed information. However, since inadvertent errors can occur and since relevant laws and regulations often change, the information may be neither current nor accurate. Further, the information is intended to provide general guidance. No action should be taken or omitted to be taken in reliance upon information on this site. Users should obtain specific professional advice concerning specific matters. Further information on the relevant statues can be found at HMRC and directly at VAT Notice 701/19: Fuel and Power. Please note that we are not responsible for the content or integrity of any external websites and, as such, accept no liability for the accuracy or any other aspect of information contained in other websites.
Please do not hesitate to get in touch if you have any questions.
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