Recently we've had a few clients contact us about using Corgi VAT Saver, and there still seem to be doubts on whether it's legal or not.
I've written before about the topic of saving VAT through schemes like Corgi VAT saver. It's been a while, though, so I thought I'd share my knowledge and research again a few years on.
What is Corgi VAT Saver?
Corgi VAT Saver is a service that helps gas engineers save VAT when installing boilers.
The principle is that parts of a boiler are energy efficient (not the whole installation, just parts of it), so based on the VAT Notice 708/6 law you can charge 5% VAT on the labour and materials of the install.
So, is Corgi VAT Saver legal? What's the problem?
There are a few problems with determining whether Corgi VAT saver is legal.
The first is the specific law in question, VAT Notice 708/6. It allows companies to charge 5% VAT on installations where the primary item being installed is on a specific list of energy efficient products.
This means if the main purpose of you being onsite is to install a boiler, then you are not allowed to charge 5% on the labour portion of your work (which is where the biggest VAT saving is).
The second problem is how people are using the scheme. Most companies are charging 5% VAT to the consumer, but simply increasing their price so the consumer isn't saving any money.
They're then hiding the VAT portion of the quotation from the customer so they're none the wiser. (It's worth noting that not showing the VAT to a customer who isn't VAT registered, i.e. a private customer, is not illegal.)
That means instead of passing on the savings, the company is increasing their profit margins.
Is increasing their profit margins really a bad thing?
No, not really. The problem is that HMRC are losing out. HMRC are only receiving 5% of their VAT.
As you know, HMRC aren't one to lose out, so they've been taking companies to court and demanding the correct VAT back.
These companies haven't budgeted for huge additional VAT bills,, which has caused significant cash flow problems—and even, in some cases, bankruptcy.
What's worse, the fees to the providers of these schemes aren't refunded, meaning the plumbing, heating and gas company is out of pocket.
When I wrote my first blog post about this subject, HMRC and companies providing these systems/software were in a legal battle. It appears now that HMRC have won. (We’ve been informed that a number of parties are currently contesting this decision and appealing the ruling.)
"HMRC now state that if an installer installs a full central heating system with solar panels etc, then the VAT rate is 20% – not 5%"
HMRC have altered VAT Notice 708/6, which is their guideline for our industry in the use of 5% VAT on energy efficient controls.
Section 2.3.3 now states that a central heating system installed as the principal supply along with energy efficient controls now renders the entire installation at 20% VAT.
While this may seem unfair for small businesses looking to use these sorts of schemes, the law has been clear from the beginning. This amendment appears to just clarify it once and for all.
While this article, like the last one I wrote, isn’t telling you what to do (or not do), it's a warning for those businesses to speak to their accountant and to HMRC for advice before investing in this sort of scheme.
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