VAT - new zero rate for "energy saving materials" (ESMs)
The rate of VAT applicable to ESMs will be reduced from 5% to 0% for a five-year period, with effect from 1 April 2022. ESMs include home insulation materials, solar panels and heat pumps. Wind and water turbines are also within the scope of the relief.
Since the introduction of this relief diverts from EU VAT rules, the Northern Ireland Protocol will prevent it from applying in Northern Ireland for the time being. The Northern Ireland Executive will instead receive a Barnett share of the value of the relief (based on the Barnett mechanism for adjusting the amounts of public expenditure allocated to Northern Ireland) until its UK-wide introduction can be negotiated with the EU.
With regard to VAT, it is worth noting that today’s announcements did not include an anticipated extension of the reduced 12.5% rate of VAT currently applicable to services provided by the hospitality sector. This means that, from 1 April 2022, the hospitality industry will once more be subject to the 20% standard rate of VAT.