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VAT on Solar panels

VAT appears to have been charged at incorrect rate. Just want to double check.

Solar panels are being installed on commercial premises (non residential) owned by a client. The installer has charged VAT at 5%; I thought this only applied to residential premises (see VAT Notice 708/6). I have also noted that they applied the same rate to an installation 3 years ago. Before I point this out to the client and start the whole hassle of obtaining correct invoices and arguing the toss with the supplier, can anybody confirm that I am right that it should be 20%? Let me know if more detail is required.

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16th Apr 2019 13:30

Most commercial installations are standard 20% rated, however it is possible that the 5% charged is correct, if your client's premises is used for certain activities

you don't say what the premises are used for??

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to busacrun
16th Apr 2019 13:44

Thanks for the reply. The premises are used for storage.

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to paulwakefield1
16th Apr 2019 13:56

sounds like its a standard rated supply then

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16th Apr 2019 14:17

I wouldn't point it out to the client - what would be the benefit to him?

If it were the other way around, where the supplier was charging 20% instead of 5%, that would be different since HMRC could block recovery of the 15% incorrectly charged.

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to Wilson Philips
16th Apr 2019 15:05

I agree it is the beneficial way around but I had always understood that VAT charged at the incorrect rate was not VAT and therefore not reclaimable (even when charged at a lower rate).
And, although I have no responsibility for them, the supplier could have a nasty shock if they have a VAT inspection and it would be the decent thing to alert them.

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to paulwakefield1
16th Apr 2019 15:55

It depends on whether you think "incorrectly charged" means "charged when it shouldn't have been" or "charged at the wrong rate".

In my experience, when 20% has been charged instead of 5%, HMRC have disallowed only the 15% excess, suggesting that of the 20% 5% was correctly charged and 15% wasn't.

It's debatable, though.

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to Wilson Philips
16th Apr 2019 18:00

Having now had the opportunity to browse though the HMRC VAT manual, it appears to say that so long as the supply should have been at a positive VAT rate (i.e. not zero, exempt or outside the scope) then VAT can be reclaimed with the implication being even if it is at the wrong rate. VIT12100 and VIT12500. However I am sure (as you identify) that, if VAT is charged at 20% and should have been 5%, HMRC would restrict relief which seems to contradict the above.

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to paulwakefield1
16th Apr 2019 18:24

Case law dictates that input VAT claim is restricted to the VAT that is due.

VIT63100

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16th Apr 2019 19:48

Thank you. It also goes on to say "the right [to deduct] does not extend to VAT which is shown on an invoice but which has been incorrectly charged." which takes us back to how to you interpret "incorrectly charged". :-)

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to paulwakefield1
17th Apr 2019 07:15

A natural reading is that, if the correct rate is 5 and you are charged 20, then the 5 is correctly charged and the 15 not (and you have no right to deduct the 15); if the correct rate is 20 and you are charged 5, then none of what you pay was incorrectly charged. Which agrees with Wilson.

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17th Apr 2019 08:14

I will indeed go with the "5% is reclaimable" approach. I agree that is the most natural reading (although we are dealing with HMRC here and I can see that they could argue that "incorrectly charged" covers "insufficiently charged" as well as "excessively charged". But I am encouraged by the practical experience related here).

Thanks all.

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