Revenue and Customs Brief 9/18 - VAT damp proofing products
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This brief clarifies HMRC’s policy on the VAT liability of
proofing products like paints, creams and gels. These products are
typically applied to the exterior walls of houses to prevent damp.
Businesses that manufacture and retail damp proofing products, and
businesses that apply these products to the exterior walls of
Businesses that make supplies of installing certain energy-saving
materials (ESMs) in
residential accommodation to final customers qualify for the reduced
rate of VAT. This includes services of installing the materials and the
materials themselves, when they are supplied as part of an
installation. Business to business supplies of ESMs are always standard rated.
HMRC has become aware of a number of businesses that are marketing
damp proofing products as ESMs.
This implies that supplies of applying these products to the walls of
residential accommodation are eligible for the reduced rate.
This treatment is supported by the Tribunal in the case Safeguard
Europe Ltd v HMRC  UK First-tier Tribunal 145 (TC)
which decided that one such product known as Stormdry qualified as an
ESM. However, as this is a First-tier Tribunal decision it is not
binding and cannot be used as a precedent.
5. Clarification of HMRC’s policy
HMRC has reviewed the VAT treatment of these products following the
Safeguard decision. It has concluded that these products do not qualify
as ESMs for the following
- the dominant purpose of these products is to water-proof exterior
walls rather than improving thermal efficiency
- there is no conclusive evidence that these products improve the
thermal efficiency of brickwork
- if such evidence became available, it is likely that any improved
thermal efficiency would be incidental to the dominant purpose of the
products which is water-proofing
- the products are not normally described as insulators
- the products are sold (or ‘held out for sale’) as
proofing products and not insulators
- the legislation refers to ESMs
being “installed”, which indicates that the legislation
refers to typical insulators such as cavity wall insulation rather than
the damp proofing products which are ‘applied’
HMRC does not regard damp proofing paints, creams or gels as ESMs. Therefore, the sale and
services of applying these products to the walls of residential
accommodation are standard rated for VAT purposes.
HMRC will apply this policy with effect from 1 September 2018 to
give businesses time to change their marketing and update their systems.
Further guidance on ESMs
can be found in VAT
Notice 708/6 and this will be updated to reflect this clarification
7. Action required
Businesses should account for VAT at the standard rate on all sales
and applications of these products on supplies made on or after 1
September 2018 and, if necessary, change their marketing. This Revenue
and Customs Brief overrides any decisions that HMRC has issued that are
inconsistent with this policy clarification.
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Article Published/Sorted/Amended on Scopulus 2018-07-20 20:00:00 in Tax Articles