VAT – Charities, Energy Saving Materials & Builders

A client is a VAT registered builder. He has been asked to install draught stripping to the windows and doors in a church. The customer has said that as the Church is a charitable organisation my client should not charge VAT at the standard rate. What’s correct?

Draught stripping for windows and doors is defined in VAT legislation as an energy saving material (“ESM”)
The reduced rate of 5% applies to the service of installing ESMs in residential accommodation (VATA 1994, Schedule 7A, Grp 2, item 1), and also to the supply of those materials by the person who installs them in the residential accommodation (VATA 1994, Schedule 7A, Grp 2, item 2).

Historically the 5% rate of VAT also applied to the installation of ESMs in buildings used for a relevant charitable purpose, but this provision was removed from the legislation with effect from 1 August 2013. The reduced rate of VAT for the installation of ESMs was only intended by the EU to apply to residential accommodation, so the amendment to UK legislation brought it into line with the intention of the Directive.

Consequently, the client will need to charge at 20% to the Church for the installation of draught stripping.
Charities are entitled to VAT relief on certain purchases of goods and services, but the conditions can be complex and eligibility declarations or certificates are often issued in error. As a supplier the client is responsible for determining the correct VAT treatment, so was wise to check the correct position and not take the charity’s statement at face value. This should be standard practice in any business supplying a charity and being provided with a request for VAT relief, whether verbal or in an eligibility declaration.

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