VENSAV3170 - Energy-saving materials: accounting for VAT when the 60% threshold has been exceeded
Where the supply is not made:
- to a qualifying person, to a relevant housing association or for a relevant residential purpose; and
- the 60% test threshold has been exceeded,
it will be necessary to apportion the value of the total supply between materials (which will be standard rated) and labour (which will be reduced rated).
It will be a commercial decision as to how this apportionment will be carried out – normal commercial practice is for the installer to at least recharge the cost of the materials on to its customer and, more commonly, to apply a mark-up over and above the price paid by it for those materials. Provided there is no artificial undervaluation of the materials by the installer, HMRC will not challenge such apportionments as long as the installer at least recharges the costs incurred by it.
Once the installer has determined the apportionment that it wishes to apply, it will need to separately identify the materials and labour element on the VAT invoice it issues to its customer. The materials element will bear VAT at the standard rate and the labour element will bear VAT at the reduced rate. This VAT must then be included on the installer’s VAT return and paid to HMRC in the normal way.