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This publication is available at https://www.gov.uk/government/publications/revenue-and-customs-brief-9-2018-vat-damp-proofing-products/revenue-and-customs-brief-9-2018-vat-damp-proofing-products
This brief clarifies HMRC’s policy on the VAT liability of damp proofing products like paints, creams and gels. These products are typically applied to the exterior walls of houses to prevent damp.
Businesses that manufacture and retail damp proofing products, and businesses that apply these products to the exterior walls of residential accommodation.
Businesses that make supplies of installing certain energy-saving materials (ESMs) in residential accommodation to final customers qualify for the reduced rate of VAT. This includes services of installing the materials and the materials themselves, when they are supplied as part of an installation. Business to business supplies of ESMs are always standard rated.
HMRC has become aware of a number of businesses that are marketing damp proofing products as ESMs. This implies that supplies of applying these products to the walls of residential accommodation are eligible for the reduced rate.
This treatment is supported by the Tribunal in the case Safeguard Europe Ltd v HMRC  UK First-tier Tribunal 145 (TC) (“Safeguard”), which decided that one such product known as Stormdry qualified as an ESM. However, as this is a First-tier Tribunal decision it is not binding and cannot be used as a precedent.
5. Clarification of HMRC’s policy
HMRC has reviewed the VAT treatment of these products following the Safeguard decision. It has concluded that these products do not qualify as ESMs for the following reasons:
- the dominant purpose of these products is to water-proof exterior walls rather than improving thermal efficiency
- there is no conclusive evidence that these products improve the thermal efficiency of brickwork
- if such evidence became available, it is likely that any improved thermal efficiency would be incidental to the dominant purpose of the products which is water-proofing
- the products are not normally described as insulators
- the products are sold (or ‘held out for sale’) as water-and-damp proofing products and not insulators
- the legislation refers to ESMs being “installed”, which indicates that the legislation more naturally refers to typical insulators such as cavity wall insulation rather than the damp proofing products which are ‘applied’
HMRC does not regard damp proofing paints, creams or gels as ESMs. Therefore, the sale and services of applying these products to the walls of residential accommodation are standard rated for VAT purposes.
HMRC will apply this policy with effect from 1 September 2018 to give businesses time to change their marketing and update their systems.
Further guidance on ESMs can be found in VAT Notice 708/6 and this will be updated to reflect this clarification of policy.
7. Action required
Businesses should account for VAT at the standard rate on all sales and applications of these products on supplies made on or after 1 September 2018 and, if necessary, change their marketing. This Revenue and Customs Brief overrides any decisions that HMRC has issued that are inconsistent with this policy clarification.