Government urged to reinstate energy saving materials tax relief for charities

08 Jun 2023 News

Charity Finance Group (CFG) has urged the government to reinstate a tax relief available to charities that install energy saving materials (ESMs).

The government previously provided a VAT relief for the installation of ESMs in a building used for a charitable purpose but it narrowed this to exclude charitable buildings after discussion with the European Commission in 2013.

At last year’s spring statement, the government announced plans to expand the VAT ESM relief scheme, which it said could be worth around £280m to improve homes’ energy efficiency over a five-year period, and opened a consultation.

In its response, CFG said that the government should reinstate the relief to apply “to buildings used for a relevant charitable purpose”.

A survey of CFG’s members showed that the majority (84%) intend to install ESMs, “with controls for central heating and hot water systems, solar panels and insulation being the most popular measures”.

Two-thirds of respondents said that “VAT relief was important in deciding whether or not to install energy saving measures”.

‘Any tax relief is to be welcome’

Richard Sagar, head of policy at CFG, said that for many charities reinstating the relief might be the difference between them deciding to install energy-saving measures and not doing so.

“At a time of persistent high inflation, stagnating income and increased demand for their services, any tax relief is to be welcome,” he said.

“We found that for many of our member charities, any additional financial incentive could encourage them to install ESMs that they otherwise wouldn’t. In other cases, it would speed up a charity’s ability to install ESMs by reducing the amount of expenditure needed.

“By reinstating this relief, charities can focus more of their resources on providing public benefit and making a positive difference to their beneficiaries, whilst meeting environmental and energy saving objectives.”

Previous relief scrapped

Until August 2013, UK law provided a VAT relief for the installation of ESMs in buildings used solely for a relevant charitable purpose.

Following discussion with the European Commission, the UK government agreed to withdraw the measure to ensure UK legislation fully complied with EU law.

Now that the UK is no longer part of the EU, the government said that it “can consider reinstating this relief”. 

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