Charities are facing a quadrupling of VAT on the energy-saving materials used in some of their buildings under new legislation to be introduced next year.
In an announcemen in yesterday’s Budget, HM Revenue and Customs said it would abolish the current reduced VAT rate of 5 per cent on energy-saving products used in charitable buildings, including insulation, boiler controls and solar panels,.
Instead, charities will pay the full VAT rate of 20 per cent on the materials when the change is introduced in the Finance Bill next year.
The measure applies to energy-saving materials installed in buildings used by charities for non-business purposes and in village halls. But the reduced rate of VAT will still apply to the supply and installation of energy-saving materials in residential accommodation, including that operated by charities.
Graham Elliott, a partner at accountancy firm Haysmacintyre, said the change on energy-saving materials affected only the minority of charities whose buildings were used for non-business purposes. "Many charities are in business even if they are non-profit-making," he said.
Elliott speculated that the reduced VAT rate on energy-saving materials in charitable buildings might have been abolished to bring it into line with the reliefs allowed under European law.
See our round-up of stories on the 2012 Budget