Dáil Éireann Debate, Tuesday - 24 January 2023
154. Deputy Fergus O'Dowd asked the Minister for Finance his views on the possible easing of VAT rates for retrofitting works or renewable energy works for domestic purposes, to assist homeowners in reducing reliance on energy providers in a crippling energy crisis; and if he will make a statement on the matter. [2996/23]
View answerThe VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.
Building materials are not included in the categories of goods and services on which the EU Directive allows a lower rate of VAT or an exemption to be applied, and so they are liable to VAT at the standard rate. By way of special derogation from the general rule though, Ireland is permitted to continue its long-standing practice of applying a reduced rate, currently 13.5%, to the supply of ready-to-pour concrete and certain concrete blocks but there are strict restrictions on this derogation, including that the rate cannot be reduced below 12%.
Under the EU VAT Directive the supply of construction and retrofitting services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, again subject to strict restrictions.
Construction services that consist of the “renovation and repairing of private dwellings, excluding material which account for a significant part of the value of the service supplied” can benefit from the reduced rate of VAT, currently 13.5%. This means that where a building contractor carries out home improvements and the material cost does not exceed two-thirds of the costs of the improvements then the reduced rate of 13.5% applies to the total construction service. A consequences of this is that a VAT registered building contractor will generally be entitled to recover VAT at the standard rate on most building materials purchased while the contractor is only liable to change VAT at the 13.5% reduced rate on the total supply (including the materials and labour elements of the job) to the homeowner. The difference in rates between the 23% input VAT and the 13.5% output VAT should normally be reflected in the VAT inclusive costs to the homeowner.
Following amendments to Annex III of the VAT Directive, agreed in April 2022, it now includes a category for "the supply and installation of solar panels on and adjacent to private dwellings, housing and public and other buildings used for activities in the public interest." Outside of the above category in Annex III, the supply of solar equipment, is liable to VAT at the standard rate, currently 23%.
It was decided not to make any change to this rate because of the fact that when solar panels are supplied as part of a “supply and install” contract, they may be subject to VAT at the reduced rate of 13.5%.
