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Wonder if someone could advise. We are currently going through a vat inspection and we have done a handful of projects that were external wall insulation and have charged 5% vat as advised on the HMRC website https://www.gov.uk/tax-on-shopping/energy-saving-products where it states: Energy products that qualify You pay the reduced rate of 5% for: insulation on walls, floors, ceilings and lofts. However the inspector is asking for “planning permissions” to support the reduction i can show her orders from the clients and purchase of the materials refer her to 708 etc but there is no planning permission as was not required. How can I respond that is professional and polite but puts the matter to bed? I have two weeks to respond so any help i would be most grateful.
Although the link you’ve provided is a good summary, it’s worth looking at the detail in:
- HMRC’s public notice 708/6: https://www.gov.uk/guidance/vat-on-energy-saving-materials-and-heating-equipment-notice-7086
- HMRC’s internal manual, intended for use by their own staff: https://www.gov.uk/hmrc-internal-manuals/vat-energy-saving-materials-and-grant-funded-heating-supplies
- and the legislation itself (VAT Act 1994, schedule 7A, group 2): https://www.legislation.gov.uk/ukpga/1994/23/schedule/7A/part/2/chapter/2
None of the above make any specific mention of planning permission, which makes me think your inspector is hoping to find something on it which will help prove whether or not your supplies were eligible for the 5% rate. For example, part of the criteria is that the works must be carried out in residential accommodation – see section 2.20 of the public notice. Might the inspector have any doubt over whether the premises are “residential” – as this may be clarified in planning permission documentation? Could there be any doubt over the nature of the materials used, which may be clarified by detail within planning documents? Or are the buildings fairly new – as if the works are carried out in the course of a zero rated construction, they too will be zero rated rather than reduced rated – see section 2.20. Again, planning documentation may give some clarity over whether the works were part of the build, or undertaken separately later. There may also be other reasons that I haven’t been able to think of!
If based on the full guidance documents you’re still happy that your supplies fully met the conditions for reduced ratings, then I’d suggest replying explaining that you didn’t request planning documents from your customers as they weren’t required under the guidance, and also explaining for each case they’ve identified how you consider that the criteria are met. For example, was it under the social policy conditions in section 2.3 (in which case did you get any declaration by the customer?), or under the 60% test in section 2.4 (if so, provide any calculations). If you haven’t already done so, provide full details of the materials used – is there any relevant documentation produced by the manufacturer? If you can provide a detailed explanation as to why you’ve deemed the works to be eligible to the 5% rate, it’s then for HMRC to set out their reasoning more clearly if they still disagree.
As a final point, if you don’t currently get any customer declarations regarding their eligibility to the social policy conditions in section 2.3, it might be worth starting to do so. Although the responsibility is on you to ensure that the correct VAT rate is applied, you won’t know whether the customer is in receipt of any of the specified benefits, so holding a signed declaration from them that you have no reason to believe to be incorrect is the most you could reasonably be expected to do.
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