rooftop solar panels© Global Warming Images /REX Shutterstock

The Solar Trade Association (STA) wants the government to reconsider plans to increase VAT on domestic solar panels, wind turbines and hydro equipment from 5% to 20% this summer.

In its final response to an HMRC consultation on the proposed changes, the STA insisted there was a strong case for retaining the reduced rate of VAT for solar and other energy equipment. Ending it would add £900 to the cost of a typical 4kW residential solar installation, currently around £6,400, it said.

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HMRC proposed excluding solar panels, wind turbines and hydro equipment from the list of items eligible for reduced VAT to ensure UK legislation complied with EU law. This followed an EU ruling last year that concluded existing reduced VAT on energy-saving products violated the EU VAT directive as energy generation could not be classed as property renovation.

The higher rates are proposed to take effect from 1 August 2016.

Mike Landy, STA head of policy, said that although the changes only affected domestic or residential customers, there could be knock-on effects across the supply chain as installer margins were squeezed.

“Equally, if Decc do as they have suggested and raise the Feed-in Tariff rate for domestic solar to compensate for higher VAT, this leaves less money in the pot for commercial rooftop and ground-mount solar,” he added.