VENSAV3160 - Energy-saving materials: examples of how the 60% test works
When applying the 60% test the materials that are included in the calculation include all of the goods supplied to the customer as part of the installation and which remain in place once the job has been completed.
Example 1; a business carries out an installation of solar panels combined with a battery for the storage of power generated from the solar panels. The materials include: solar panels, inverter, cables, batteries, distribution board and customer unit. These are all goods that are supplied to the customer as part of the installation and so need to be included in the 60% test calculation.
This is in contrast to the tools and equipment used by an installer as a means of carrying out and installation. For example, where solar panels are fitted to the roof of a house, an installer would normally make use a ladder or scaffolding to access the roof. However, the installer is not selling the ladder or scaffolding to the customer and nor do they remain in place after the job has been completed and so these do not count as materials for the purposes of the 60% test.
Example 2: a business installs insulation in a residential property. The business (the installer) is charged £400 (excluding VAT) for the insulation material and charges its customer £1,000 (excluding VAT) for the installation. Since the value of the materials (the insulation) is only 40% of the cost of the total supply to the customer, the 60% threshold has not been exceeded. Therefore, the installer can charge the reduced rate of 5% on the total supply i.e. 5% of £1,000 = £50.
Example 3: a business installs solar panels in a residential property. The business (the installer) is charged £2000 (excluding VAT) for the solar panels and charges its customer £3,333 (excluding VAT). Since the value of the materials (the solar panels) is 60% of the cost of the total supply to the customer, the 60% threshold has not been exceeded. Therefore, the installer can charge the reduced rate of 5% on the total supply i.e. 5% of £3,333 = £167.
Example 4: a business carries out an installation of solar panels combined with a battery for the storage of power generated from the solar panels. The business (the installer) is charged £3,500 for the solar panels and battery (excluding VAT) and charges its customer £5,385 (excluding VAT) for the installation. Since the value of the materials (the solar panels and the battery) is 65% of the cost of the total supply to the customer, the 60% threshold has been exceeded. This means that the business will need to separately identify the value of materials supplied to its customer and charge VAT at the standard rate. The labour element of the supply will continue to qualify for the reduced rate.