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HMRC internal manual

VAT Energy-Saving Materials and Grant-Funded Heating Supplies

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Grant-funded installations: grant funding

Supply only included so far as grant-funded

This is covered by the VAT Act 1994, Schedule 7A, Group 3, Legal Note 1(1) and 1(2)

What is a grant?

A grant is:

  • money given to householders by grant-awarding bodies; or
  • money paid directly by grant-awarding bodies to installers to fund work done for someone else. (Some grant funding schemes pay money directly like this, as it can be more convenient and secure to operate the scheme this way).

European Court of Justice decision Keeping Newcastle Warm C-353/00

This case concerned the question of whether a payment by a national agency to Keeping Newcastle Warm (KNW) in connection with energy advice which KNW provides to householders is liable to VAT. The ECJ found that the taxable amount in respect of a supply of services was everything which made up the consideration for the service. It was clear that the sum paid by the agency to KNW was received by the latter in consideration for the service supplied by it to the householders. As consideration in respect of a supply, that sum formed part of the taxable amount within the meaning of Article 11A(1)(a) of the EC Sixth VAT Directive (Dir.77/388.(now Article 73 of the Principal VAT Directive).

The Advocate-General’s opinion was that the subsidy was clearly attributable to the supply of energy advice, intended to pay in full or part of the supply and therefore granted by way of third party consideration.

If you need to know more about this case or subsidies and third party consideration, please refer to VATSC - Supply and consideration.

Who awards grants?

Grants are awarded by:

  • Government schemes, such as the Warm Front Scheme, or similar schemes in Wales, Scotland and Northern Ireland;
  • local authorities;
  • agencies like the Energy Saving Trust (EST; and
  • utility companies, such as electricity suppliers.

Conditions for grant-funding

Grants that qualify for the reduced rate must meet both the following conditions:

  • the scheme must have, as one of its objectives, the funding of the installation of energy-saving materials in the homes of qualifying persons, and
  • it must pay grants out of funds that have been at least partly made available to it for that purpose by any of the sources listed in the VAT Act 1994, Schedule 7A, Group 3, Legal Note 2(3)(a) to 2(3)(h).

Meaning of ‘relevant scheme’

A grant is any funding made available under a relevant scheme as defined in the VAT Act 1994, Schedule 7A, Group 3, Legal Note 2(1) to 2(4).

This will mean that schemes like the Warm Front Scheme, or similar schemes in Wales, Scotland and Northern Ireland are covered by the relief, subject to all the relevant conditions being met. The local authority schemes which meet these criteria are also included. Other schemes operated by Utility companies, which involve disbursing grants under schemes authorised by Office of Gas and Electricity Markets (OFGEM) are also included, subject to all the relevant conditions being met.